Balance transfer credit card deals cut down by lenders
The number of deals that allow borrowers to shift their debts onto a new 0% interest credit card is shrinking, analysis has found.
The maximum length of interest-free periods available on such deals is also getting smaller, meaning people have a shorter time frame before interest charges kick in, according to the research from Defaqto, a business which gives star ratings to financial products.
It found just 61 deals available, down from 81 a year ago.
The longest 0% balance transfer deal without a fee that it found on the market was 18 months, compared with 20 months last year.
Borrowers with debts that will take longer to pay off may want to search for a deal that offers a longer interest-free period, however in return they may need to pay a balance transfer fee.
The average fee for transferring a balance to a fee-charging card is 2.26%, which can add substantially to outstanding debt, Defaqto said.
It found there are only 21 cards available that have a 20-month interest-fee period or longer, compared with 36 a year ago.
Applying for a new credit card, even to just transfer an existing balance, will usually require a credit check, which can leave a footprint on someone’s credit file.
But Defaqto said several lenders offer eligibility checks which allow people to see if they would be accepted for the credit card before they apply, so they will not get a mark on their file if their application is unsuccessful.
Katie Brain, consumer banking expert at Defaqto, said: “It is a difficult time financially for a lot of people right now and many will be starting 2021 with a debt hangover from last year.
“Transferring outstanding debt to a 0% balance transfer credit card can be an effective way of getting your finances back on track. These deals allow people to pay down their debts over a set period without an expensive interest rate.
“However, borrowers should make a note of when the offer period comes to an end as these 0% rates are only introductory.”
She said those who do not end up clearing their balances on time could end up with interest rates as high as 34.94%, with the average rate standing at 22%.
Ms Brain added: “Where there is the option to check your eligibility before applying, this is worth doing as the best deals on the market tend to only be available to those with an excellent credit rating.It is also important to check if there is a fee with the card as that could eat into any introductory offer. Start by looking at the bank you have a current account with as sometimes there are lower fees for balance transfer cards with your existing bank.”
She added: “For anyone who is struggling with debt and is not sure what is right for them, it is worth talking to the Money Advice Service, for free and independent guidance.”