Save, make, understand money

Credit Cards & Loans

Balance transfer credit cards are getting cheaper

Emma Lunn
Written By:
Emma Lunn

Many balance transfer deals disappeared in the pandemic, but more lenders are now returning to the market and offering better terms for borrowers.

The lowest fee for a balance transfer deal lasting 20 months or more is 1%, down from 1.5% six months ago, according to Defaqto. The financial information company also found that there are now more than twice as many 0% balance transfer credit cards for 18 months without a balance transfer fee as there were in October 2020.

For anyone who has credit card debt they are paying interest on, moving the balance to an interest free deal can be a great way of managing the debt. This is where the new credit card takes on existing debt from other credit cards and does not charge interest on it.

The interest-free period will usually be limited to a set timeframe after which the debt will accrue interest. These deals can be ideal for those who are paying interest on an existing credit card or cards and need more time to repay it.

There are currently nine fee-free balance transfer deals – more than double the number available in October 2020. The longest fee-free deals are for 18 months and are offered by Sainsbury’s Bank, Santander, Natwest, RBS and Ulster Bank (although some of these cards are only available to existing customers).

Those who owe a larger balance may wish to opt for a deal that offers a longer repayment period, but most of these cards charge a fee. The current lowest introductory balance transfer fee is just 1% compared to 1.5% in October 2020. Even at 1%, the fee can add substantially to the debt and is only worth considering should you need a longer repayment period.

The longest interest-free repayment periods are offered by HSBC, M&S Bank, MBNA and Virgin Money, which all offer 29 months at zero interest.

Although a 0% balance transfer deal offers free credit for many months, interest will be charged on any outstanding balance at the end of the deal period. This can be an expensive shock for anyone who has not budgeted for it, and those considering one of these deals should plan to ensure they have cleared any debt before the end of the interest-free period.

Katie Brain, consumer banking expert at Defaqto, said: “Credit card debt is easy to build up and difficult to clear. Transferring existing debt to a fee-free deal can be a good way to help the borrower clear the debt without accruing more interest. It is great to see more lenders offering fee-free deals and cheaper fees for the longer-term deals. Hopefully, this will help those who have outstanding debt to get on top of it and pay it off.

“However, all of these deals are time-limited and the lender will start charging interest at the end of the introductory period. Borrowers should make a note of when the offer period comes to an end as these 0% rates are only introductory.”