Credit card companies want to turn your unused credit line into cash that you can borrow for things like home improvements or unexpected expenses. But accepting this loan offer may not be the best choice for your wallet or your credit score.

In recent months, two of the largest credit card issuers, Citi and Chase, have announced they’ll offer credit card loans to eligible cardholders. Citi is offering its Citi Flex Loan, while Chase plans to launch My Chase Loan in late 2019.

The new products appear to be aimed at taking a share of the ballooning market for personal loans, which hit a record $143 billion in the first quarter of 2019, according to credit reporting agency TransUnion, an increase of 19.2% year over year.

Credit card loans are fast, convenient and cheaper than cash advances. But personal finance experts say the loans are still costly and can lower your credit scores, making it more difficult to obtain credit with low interest rates in the future. Before you accept this seemingly simple way to get cash, consider the risks and compare your alternatives.

Citi and Chase customers don’t have to request a loan — or even apply. The companies are promoting their “flexible financing offering” or new “loan feature” via email, direct mail or on account log-in pages.

“It’s very tempting because it’s so fast and easy, with no application,” said David Rae, a certified financial planner based in Los Angeles. “If you’re already in debt, it can cause that debt to snowball and become a big problem.”

The amount you can borrow depends on how much credit line you have available. Once you choose a loan amount and repayment term, the issuer transfers the cash to your bank account within a couple of days. Citi will alternatively mail a check.

The loans have payback terms of one to five years, and monthly repayments are added to your card’s minimum payment due. Citi and Chase say they report payments to the credit bureaus as credit card payments, not as separate loan payments.

Having different types of credit on your reports can positively affect your scores. In this case, “there’s no added benefit to your credit score, beyond just having a credit card and making a payment,” Rae said.


By Steven Nicastro of NerdWallet