Credit card competition has been rife for interest-free balance transfers in recent years, a sector that gives borrowers the choice to spread their debt. However, following the FCA publishing their consultation on persistent credit card debt back in April 2017, there has been increased scrutiny of this sector, and it appears that consumers could be paying the interest-free price.
Our latest research shows that providers are adjusting their interest-free balance transfer range so much that competition is starting to waver, with the longest deals disappearing from the market. Indeed, 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.
Meanwhile, Lloyds Bank and Sainsbury's Bank were offering 42-month deals, both charging 2.30%, and nuba also offered 42 months of interest-free balance transfers with a charge of 3.29%. Furthermore, there were six different brands offering 41-month deals, including Bank of Scotland who were charging 1.90%.
However, since then, competition has definitely wavered – the longest interest-free term currently available comes from Barclays Bank, whose Platinum 40 Month Balance Transfer Visa sits squarely at the top of the charts, but the fact that the interest-free term is a full three months shorter than the record is certainly notable (it's worth noting that there's still a card that offers 43 months of interest-free balance transfers from Santande, however it comes with a monthly fee of £3, so if you're purely using it for this reason you could be spending far more than you need).
This is having a knock-on effect on the average balance transfer term, as the table below shows:
|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%|
On the plus side, the average introductory fee has been falling, which should make transferring a balance more cost-effective, despite the slightly shorter terms available. These shorter terms aren't necessarily a bad thing, either, as Rachel Springall, finance expert at moneyfacts.co.uk, explains:
"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 repaying the balance as soon as possible and not putting it off if they are granted a lengthy 0% deal.
"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 [according to findings from the FCA]."
Balance transfer fees should always be considered and compared when moving debt, which is why the latest reduction in average fee is so welcome. After all, a borrower who moves £4,000 worth of debt with a 3% fee would be charged £120 for the privilege, whereas it could be possible to reduce that – or even avoid it altogether – by looking for fee-free cards.
These kind of cards are available, but bear in mind that they tend to come with shorter interest-free terms, so you'll have to look beyond the Best Buys if you want to enjoy the best of both worlds. However, bear in mind, too, that you should be wary of relying too heavily on such deals, as Rachel continues:
"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 [according to the FCA]. 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.
"Those borrowers who only pay 5% each month off a £4,000 debt will have it hanging over their heads for over seven years, which 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."
Compare the best 0% balance transfer credit cards, but just make sure you can pay the balance off in full before the interest-free period ends. Divide the balance by the length of your interest-free term and try to pay at least that amount off each month, rather than sticking with the minimum payment, and you should be debt-free in good time.
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