Using a zero percent APR balance transfer card to move a few thousand dollars from a high interest card is a great way to save on interest if you’re in debt. However, doing that with say, $25,000, can sometimes be challenging in today’s economy, where credit limits just aren’t quite as generous as they once were. That is why many people end up turning to loans instead.
But are these loans predatory? Should you apply or take a pass?
Discover Financial Services personal loans seem to be pretty popular due to the powerful national brand they have and since they’ve made a concerted effort to cross sell this service to their existing cardmember base of over 60 million customers. That gives them a huge advantage over the corner bank since they can see if you have debt on your other cards at the credit bureau. Capital One Bank is another major player in this space for the same reasons.
As you can see above, the Discover personal loan application offers anywhere from $5,000 to $25,000. At the time of this review, the advertised interest rates ranged between 7.99% to 18.99% and you could a length of up to 84 months (7 years).
Still, you probably are better off getting a 0% intro offer from a credit card issuer. If you need to pay someone cash that doesn’t take credit cards, you could always use PayPal to send the money to them (Paypal is classified as a purchase typically).
Among numerous reviews posted on the forum, there were 2 in particular which claimed this loan offer from Discover to be a “scam” for the following reasons:
- One guy said it because his loan wasn’t approved despite a good credit score.
- Another guy said it because he was given an interest rate higher than the 7.99% even though he claimed to have a high score.
In a nutshell, both seemed to feel it was a bait ‘n switch however, I can assure you the Discover personal loans are definitely NOT a scam. Here’s why…
- You may be surprised to hear that Discover and American Express have a lot in common, including the fact that both cater to those with excellent credit. In fact, many Discover cards are even more difficult to acquire than those from venerable American Express. In other words, they are quite choosy about who they approve. But this isn’t a bad thing… don’t you want a bank that manages their risk responsibly?
- Remember the advertised range is 7.99% to 18.99%. Just because you don’t get the best rate, it absolutely doesn’t indicate that it’s fraudulent or a consumer scam. I have seen reviews from people with only average credit scores who still go a fairly good rate. For example a few years back this guy got $19k at 11.99% with a credit score in the low 700s.
- Ultimately if the personal loan is a lower rate than what you’re currently paying on your debt, then it can make solid financial sense. Even if you get a rate 3% reduction in your average credit card rates that still means you are saving a significant amount of money, probably
For large debts, the personal loans from Discover can be a good way to pay down debt at a lower rate. The vast majority of reviews I have read from customers are positive, so don’t let a couple disgruntled people talk you out of them, as many of the comments like the ones above are pretty flimsy in terms of evidence. You should apply if you don’t want to do balance transfers.
On the other hand, even if you have $25,000 in debt, you may still be able to take advantage of zero percent credit card deals if you split it between 2 or 3 different cards. Considering that there plenty of 0% transfer offers for 15 and 18 months in the market, this may be the way to go.
My recommendation would be to setup automatic bill pay on those accounts once the balances are transferred to ensure you are consistently chipping away at the debt. And, as with all 0% balance transfers, it’s imperative to be disciplined and use the interest rate holiday to aggressively pay down the debt. If you just let it sit while running up new balances on your credit card you’ve only kicked the can down the road and made the situation worse, not better. Just remember that these types of expanded financial services that card issuers provide are not always in your best interest. At the end of the day they’re trying to sell or rent you money. Whether that’s something you truly need or just want in order to indulge in some extreme consumerism is only something you can decide. Just be sure you are fully informed of the pros and cons so that you don’t end up getting ‘serviced’ by the bank.
This post was written or last updated January 19, 2016