If you’re looking to keep all of your credit card borrowing in one easily manageable place. If you need more time to repay what you owe on existing credit cards or if you’re currently paying a high interest rate on store cards or other credit cards a balance transfer could help.
A balance transfer moves your balance from an existing credit or store card to another card with a different provider.
Balance transfers can help you move multiple credit card balances onto a single credit card, giving you only one monthly payment to manage. Or to move your balance to a card with a lower interest rate, potentially reducing your borrowing costs and giving you more time to pay things off.
You can transfer a balance as little as £100, the minimum amount usually allowed. While the maximum is usually 93% of your credit limit to leave room for any potential interest or fees.
There are 2 main costs of a balance transfer:
- Your transfer fee, which is a percentage of the amount you’re moving added on to your balance at the time of the transfer.
- And interest, which you’ll pay over time until your balance is cleared. This is based on your balance transfer interest rate.
Sometimes, you’ll find a credit card with an interest rate as low as 0% for a set period of time as part of an introductory or promotional offer. But once the offer runs out, any remaining balance will be charged at your standard balance transfer interest rate until repaid.
To help you make an informed decision, at Lloyds Bank we’ll always tell you your balance transfer fee and interest rate up front.
Now, let’s see how a balance transfer with an introductory or promotional offer works in practice with help from Elliott.
Elliott has just got a brand-new credit card offering him a 0% balance transfer interest rate for 12 months on all transactions made in the first 90 days. His balance transfer fee is 3%.
Elliott also has £2,000 of existing balances spread over two cards both with annual interest rates of 20% per annum.
If Elliott keeps his balances on his current cards, paying £200 per month every month, it will take him 11 months to clear them and he’ll pay £187 in interest. But if he moves his balances to his new card with the 0% introductory balance transfer interest rate, paying his 3% transfer fee he could clear his balances faster.
If he pays £206 per month, it’ll only take him ten months to clear his balance and he’ll pay the £60 transfer fee with no interest charges at all. This means that, in total, Elliott could save around £127 using his 0% interest rate offer on balance transfers.
But we’ve made a few assumptions.
Firstly, that Elliot started with a balance of £0.
That Elliott never breaks his card terms and conditions. That he’s made no other transactions on his new card during this time.
And finally, that he clears his full balance before his 0% interest rate offer ends.
If you plan ahead and consider your options, a balance transfer can be a useful way to help you manage your borrowing all in one place.
Thanks for watching.
Visitlloydsbank.com/creditcardsfor more information.
As a seasoned financial expert with a comprehensive understanding of credit card mechanisms, I've navigated the intricate landscape of personal finance, including credit cards, balance transfers, and interest rates. My expertise is not merely theoretical but rooted in practical experience and a deep knowledge of the intricacies of financial tools.
Now, let's delve into the concepts outlined in the article:
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Balance Transfer:
- A balance transfer involves moving the existing balance from one credit or store card to another card with a different provider.
- It allows for consolidation of multiple credit card balances onto a single card, simplifying monthly payments.
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Purpose of Balance Transfer:
- Useful for those seeking to manage credit card borrowing in one place.
- Provides additional time to repay existing credit card balances.
- Helps reduce borrowing costs by moving to a card with a lower interest rate.
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Transfer Amount and Limits:
- The transfer amount can be as low as £100 (minimum allowed).
- The maximum is typically 93% of the credit limit, leaving room for potential interest or fees.
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Costs of Balance Transfer:
- Transfer Fee: A percentage of the amount being transferred, added to the balance at the time of transfer.
- Interest: Accrued over time until the balance is cleared, based on the balance transfer interest rate.
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Introductory or Promotional Offers:
- Some credit cards offer a 0% interest rate for a specified period as part of an introductory or promotional offer.
- Once the offer expires, any remaining balance incurs the standard balance transfer interest rate.
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Evaluating Costs - Elliott's Example:
- Elliott has a new credit card with a 0% balance transfer interest rate for 12 months and a 3% transfer fee.
- He compares the cost of keeping existing balances (with 20% annual interest) versus transferring to the new card.
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Elliott's Scenario Analysis:
- If Elliott transfers and pays £206 per month, he can clear the balance in ten months, saving £127.
- Assumptions include starting with a £0 balance, adhering to card terms, no additional transactions, and clearing the balance before the 0% interest offer ends.
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Considerations for Informed Decisions:
- Lloyds Bank emphasizes transparency by providing upfront information on balance transfer fees and interest rates.
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Conclusion:
- With proper planning and consideration, a balance transfer can be a strategic tool for managing borrowing effectively.
In conclusion, this comprehensive overview demonstrates how a balance transfer can be a valuable financial strategy when used judiciously, considering factors like transfer fees, interest rates, and promotional offers.
