Balance transfers allow credit card users to transfer the money they own on one credit card to another. Often the new balance will enjoy a more attractive interest rate.
What is a balance transfer?
If you pay off your credit card balance in full and before the due date each month, you do not usually have to pay any interest on the purchases and payments you make with the card. If you do not pay off the money you owe, you will be charged interest on the balance.
A balance transfer is a way of moving the money you owe from one card to another. The card you are transferring the balance to may be an existing card or a brand new one. Essentially, the credit card company on the receiving end of a balance transfer pays off the old credit card debt and transfers it to their card.
What are balance transfer rates?
Balance transfer rates are the interest rates that will be applied to the balance once it has been transferred. Credit card companies will often offer attractive rates for balance transfers, especially for new customers. This rate could be as low as 0%, meaning no interest at all is paid on the balance.
Some balance transfer rates will apply for the life of the balance. Others will only apply for a set length of time and will then revert back to a higher rate. Promotional or introductory 0% rates will almost always have a time limit. This is often somewhere between 9 – 18 months but can vary. The provider of the new card is obliged to clearly tell you how long any promotional rates will last for.
Will there be a balance transfer fee?
There may be a balance transfer fee to be paid. This is expressed as a percentage of the balance to be transferred. It is usually around 3% but can vary depending on the card provider and product. If you transferred a balance of £1,000 with a balance transfer fee of 3%, it would cost you £30. The fee is usually added onto the balance rather than paid outright. This means that if you transferred the £1,000 to a new card, you would have a total balance on that card of £1,030.
How much can I transfer?
The amount you can transfer depends largely on the credit limit of your new card. The credit limit must be enough to cover both the full amount of the balance to be transferred plus any balance transfer fees to be applied. Some companies may also have a limit on the size of balance transfers allowed. This may be expressed as a percentage, such as 90% of the new card's credit limit.
Can I transfer a balance from another type of credit?
Balance transfers can usually only be made between two different credit cards. These can include store cards, which are a type of credit card restricted to use in one particular shop or retail group. Personal loans cannot typically be transferred but a few cards do allow you to make a balance transfer between a bank account and the card. This can allow you to pay off an expensive overdraft by transferring it to a card with a low balance transfer rate. The usual balance transfer fees apply and any promotional balance transfer rate may revert to a higher rate after a given length of time.
What are the terms and conditions?
The terms and conditions for a balance transfer may vary between providers and individual products but, as with any financial product or service, you should check them all carefully. If you are on a special rate, for example, and you miss a payment, the interest rate might revert to the credit card company's standard rate.
Back to top