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Credit Cards & Loans

Balance transfer war cools in Q2

Paloma Kubiak
Written By:
Paloma Kubiak

Competition in the balance transfer credit card sector is starting to cool with the longest interest-free deals disappearing.

Providers are adjusting their interest-free balance transfer range to such an extent that competition is starting to waver, according to data site, Moneyfacts.

It said that since the regulator, the Financial Conduct Authority (FCA) published its consultation on persistent credit card debt in April this year, there has been increased scrutiny of the sector.

In April, borrowers could find a market-leading 43-month interest-free card from Halifax and MBNA, charging balance transfer fees of 2.98% and 2.99% respectively.

Lloyds Bank and Sainsbury’s Bank offered 42-month deals, both charging 2.30%, and nuba also had a 42-month card with a charge of 3.29%. There were also six different brands offering 41-month deals, including Bank of Scotland, which was charging 1.90%.

In contrast, the longest interest-free deal today without a usage fee is for 40 months. 

  6 Months Ago Apr-17 3 Months Ago Aug-17
Number of 0% introductory balance transfer deals 126 125 125 119
Average 0% introductory balance transfer term (days) 669 651 659 645
Average introductory balance transfer fee 2.29% 2.24% 2.27% 2.16%

Rachel Springall, finance expert at Moneyfacts, said interest-free balance transfer cards can be a helpful choice for consumers looking to consolidate and spread the cost of their debts, but their main goal should be to repay the balance as soon as possible.

“It’s concerning to think that borrowers may well be relying on balance transfer cards too much, with 0% balance transfer offers accounting for a quarter of outstanding balances. It’s also entirely possible that consumers may be unable to repay their debt before their interest-free deal ends – particularly if they are struggling with their finances due to the rising cost of living.”

Springall added that the longest-term 0% offer may well get the spotlight, but borrowers must also consider any upfront fees that are charged to move the debt across.

“It sounds simple, but disturbingly, only 20% of consumers study both the introductory deal and the fee when looking for a balance transfer card.

“Balance transfer fees should be considered and compared when moving debt. A borrower with a £4,000 debt that’s moved for a 3% fee would have to fork out £120. Consumers could instead avoid fees altogether, as there are interest-free and fee-free cards around, but they will need to look away from the longest deals to find these.”

Borrowers who only pay 5% each month off a £4,000 debt will have it hanging over them for over seven years.

“This means that, even if they had the longest interest-free deal, they would still need to switch it to keep their debt interest-free. Consumers should therefore keep an eye out for the best deals and overpay their balance whenever possible,” she said.