Banks are reining in the terms of balance transfer credit cards, cutting interest-free periods and raising fees on 0% offers as concerns about bad debts mount.
- Last week Halifax, Tesco and Virgin Money lowered the terms of their deals.
- Experts say banks may be responding to concerns about a looming credit crunch
- We look at the best balance transfer cards customers can still get
Banks are reining in the terms of their 0% balance transfer credit cards, cutting interest-free periods and raising fees.
Last week, Halifax cut its longest balance transfer term from 29 months to 25 months, Tesco Bank cut its deal from 30 to 27 months and Virgin Money cut the term of its longest deal from 31 to 29 months.
A balance transfer credit card allows people to pay off debt by transferring everything they owe to a new card.
This means they pay interest on one account instead of multiple, but balance transfer cards also often come with the promise of 0 percent interest for a fixed period of time.
Adjustment: The average interest-free period on a balance transfer credit card has decreased over the past year
The average interest-free period on a balance transfer credit card has decreased over the past year, while the average balance transfer fee has increased, according to data from Moneyfacts.
The average 0 percent balance transfer time on credit cards has fallen from a high of 613 days in June of last year to 554 days to date.
Meanwhile, the average balance transfer fee has risen from 1.89 percent a year ago to 2.28 percent today, meaning the cost of transferring debt has risen.
For example, someone who transferred £5,000 last year would typically have faced £94.50 in fees on average. Today it will cost them £114.
They will no doubt be keeping an eye out for rising bad debts on the horizon, as the credit crunch affects customers’ ability to keep their finances in order.
Andrew Hagger, a personal finance expert at MoneyComms, thinks it suggests lenders may be worried about a looming credit crunch.
“It could be part of a tightening of lenders’ credit strategy,” says Hagger. ‘They will no doubt have an eye on rising bad debts on the horizon as the credit crunch affects customers’ ability to keep their finances in order.
“If you’re looking to switch a balance to a new card and your credit rating is good, then it may be worth making your move sooner rather than later before the enticing zero-percent offers dwindle further.”
Those transferring money to one of these cards will also need to make sure they pay it back on time or potentially risk higher interest rates.
Over the past year, the average purchase APR on a balance transfer card has also increased, according to Moneyfacts, from 26.7 percent to 31.2 percent.
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The average balance transfer fee has risen from 1.89 percent a year ago to 2.28 percent today.
What are the best credit cards for balance transfers?
NatWest and RBS currently offer the longest balance transfer offers, giving eligible customers a potential 0 percent balance transfer period of 30 months.
There’s also 0 percent interest on purchases for 3 months from account opening and no monthly account fee.
However, there is a transfer fee of 2.99 percent and the minimum transfer you can make is £100.
NatWest and RBS also offer the longest no-fee option, offering 0 percent interest on balance transfers for up to 19 months.
The minimum balance transfer amount is also £100. Balance transfers must be made within 3 months of account opening.
Is a balance transfer card right for you?
For those who can pay off their debt in a couple of months, a balance transfer card may not be the best option.
Balance transfer cards rarely come with extra benefits, like cash back or rewards, for example.
Anyone looking for a credit card to reward their everyday spending or to give points towards their next flight, for example, will probably want to choose a different card.
However, for those with a large amount of credit card debt, a balance transfer agreement might be a no-brainer.
They can usually transfer up to 90 or 95 percent of your new card’s credit limit, which will limit the amount of debt they can consolidate, but it might still be worth it in any case.
Will you need a good credit score to get one?
A person’s credit score will likely determine which balance transfer offers they are eligible for.
Without a very good credit score, card issuers can still approve someone but offer a deal shorter than 0 percent.
Someone with poor credit may not be eligible for deals offered by major providers.
