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A fresh battle for balance transfer customers

A fresh battle for balance transfer customers

Category: Credit cards

Updated: 12/01/2016
First Published: 12/01/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The start of a new year is often a time when consumers start to re-evaluate their finances, and many decide to consolidate their festive debt with a 0% balance transfer card. This year, it seems that providers are being particularly accommodating, with our research showing that the start of 2016 has initiated a fresh rate war between credit card providers, many of whom are becoming embroiled in an intense battle to attract new customers…

Ring the changes

The data shows that Bank of Scotland, Halifax, Lloyds Bank, TSB, Barclaycard and Tesco Bank have all scrambled to make changes to their balance transfer credit cards since the turn of the year, typically by extending the interest-free terms or reducing the introductory balance transfer fee.

Virgin Money also launched a 38-month 0% interest balance transfer deal (with a 2.79% fee) last week, with there being a clear fight to make it to the top of the balance transfer market (a crown currently held by MBNA's Platinum Credit Card with a market-leading 39-month balance transfer term).

As a result of this growing level of competition, the average interest-free balance transfer term has risen to the highest on record and now stands at 590 days, up from 468 a year ago. In even better news, balance transfer fees have fallen (the average now sits at 2.21%, down from 2.52% last year), which means that the cost of borrowing has been cut from every angle.

The table below highlights the recent changes in more detail, as well as the steady rise in balance transfer terms, and shows just how competitive many providers are becoming:

Credit card changes for balance transfers in 2016 0% BT deal before update 0% BT deal now Intro BT fee before update Intro BT fee now
Tesco Bank Clubcard Balance Transfer MasterCard 37 months 38 months 2.90% 2.70%
TSB Online Platinum MasterCard 28 months 28 months 3.00% 0.70%
Lloyds Choice Rewards Amex/MC (b) 28 months 30 months 3.00% 3.00%
Halifax All in One MasterCard 28 months 30 months 1.00% 1.00%
Barclaycard Platinum Purchase & Balance Transfer Visa (b) 16 months 20 months 1.49% 1.49%
Barclaycard Platinum 32 Month Balance Transfer Visa 32 months 32 months 1.15% 1.13%
Bank of Scotland Platinum 30 Month Balance Transfer Visa 28 months 30 months 1.00% 1.00%

(b) Branch.

0% interest terms and fees shown are introductory.

BT = Balance transfer

Jan-14 Jan-15 Jul-15 Jan-16
Average balance transfer term (days) 413 468 539 590
Compiled 12.01.16

"As spenders recover from the excesses of the festive season, the start of a new year can trigger the desire to tackle outstanding debts," said Rachel Springall, finance expert at Moneyfacts.

"Heightened rivalry in the balance transfer market will therefore come as welcome news to borrowers, particularly those who want to avoid large fees – many of the latest deals now charge very low balance transfer fees, which makes moving credit card balances far more cost-effective."

Take advantage

So, is it time to get in on the action? If you've overspent over the festive period and are now wondering how to cope with all that credit card debt, opting for a 0% balance transfer could be ideal. It'll give you plenty of time to pay off the balance, allowing you to spread the cost and make affordable monthly repayments, and all without interest making it more difficult.

However, the only way you'll really be able to benefit is if you're truly organised, as Rachel explains: "While these cards do give borrowers longer to repay debt without interest adding to the bill, they must ensure they pay more than the minimum monthly repayment and clear the balance before the deal ends. Interest that averages around 20.09% per annum will be charged once the initial offer expires, which could then outweigh the advantages of taking out one of these deals."

The minimum monthly repayment is the absolute minimum you'll need to repay on a monthly basis – and if you miss one, your 0% deal could be revoked – but chances are, paying the bare minimum won't be enough to clear the balance by the end of the term. Instead, you'll need to work out your monthly repayments for yourself: divide the total balance by the number of months of your 0% term, and if you pay that amount off each month, you can be confident in clearing the balance before interest charges apply.

What next?

Compare 0% balance transfer cards and make the most of the balance transfer battle

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.