Changes Afoot in Balance Transfer Credit Card Landscape as Banks Adjust Terms and Fees
A balance transfer credit card offers individuals the opportunity to streamline debt repayment by transferring their outstanding balances to a new card. This approach consolidates payments and often comes with the added perk of 0% interest for a predetermined duration. However, the average interest-free period on such cards has declined over the past year, while average balance transfer fees have risen, as indicated by Moneyfacts data.
The average 0% balance transfer term on credit cards has decreased from a peak of 613 days in June of the previous year to the current 554 days. Simultaneously, the average balance transfer fee has escalated from 1.89% a year ago to the present 2.28%, thereby increasing the cost of transferring debt.
For instance, an individual transferring £5,000 a year ago would have faced an average fee of £94.50. In the current scenario, the cost has risen to £114. This trend has led financial experts, like Andrew Hagger from MoneyComms, to speculate that lenders might be expressing concern over a looming credit crisis. Hagger suggests this could be part of a broader credit strategy shift, possibly linked to the anticipation of rising bad debts resulting from the credit crisis.
For those considering a balance transfer to a new card, Hagger advises prompt action to capitalize on the existing attractive 0% deals before potential further reductions. However, successful balance transfers require diligent repayment to avoid the risk of higher interest rates. Over the past year, the average purchase Annual Percentage Rate (APR) on balance transfer cards has also increased, rising from 26.7% to 31.2% according to Moneyfacts.
Currently, NatWest and RBS offer the most extended balance transfer options, presenting eligible customers with a potential 30-month 0% balance transfer period. This comes with a 0% interest on purchases for three months from account opening, and no monthly account fee. However, a transfer fee of 2.99% applies, and the minimum transfer amount is £100. These institutions also extend a fee-free alternative, featuring 0% interest on balance transfers for up to 19 months, with the minimum transfer amount remaining at £100 and a requirement to complete transfers within three months of account opening.
Determining whether a balance transfer card suits an individual depends on various factors. For those who can settle debts within a couple of months, alternative card options with perks like cashback or rewards might be more suitable. However, individuals grappling with substantial credit card debt could find a balance transfer deal highly advantageous. While the debt consolidation amount may be limited to around 90-95% of the new card's credit limit, this approach could still prove beneficial.
Eligibility for specific balance transfer deals often hinges on an individual's credit score. A strong credit score typically grants access to more favorable offers, whereas individuals with lower scores might secure shorter 0% deals or might not qualify for deals provided by mainstream providers. In essence, assessing personal circumstances and financial goals is crucial in determining whether a balance transfer card aligns with one's needs.
- This article was written by The Vibes Life and reflects their own opinions and research.