Borrowing on a credit card can prove expensive over time. To save hundreds of pounds in interest charges many of us take advantage of some lenders offers for 0% balance transfers. Is it just that simple, or can there be unexpected costs to the unwary? Most of the fees are fairly straightforward, but you need to look at all the terms.
Many lenders will levy a charge relating to the transfer of the balance, even if the deal is a 0% transfer. This could be a flat fee or a percentage of the balance switched. Some lenders will cap the fee amount on large transfers.
So What Is Hidden?
What many of us do not realise is that the cost of our balance transfer is apparent on the rate of interest on new purchases. The existing transfer is indeed 0%, but the interest on new purchases may exceed the rate of our old card. Less obvious and potentially more expensive is the ‘negative order of payments’ system. Here we would be obliged to clear the transfer sum before our repayments would reduce the new purchase balance. During this time interest will be charged on new purchases.
This model is not used by all lenders; some are very keen to show borrowers they can take advantage of 0% on the transfer and purchases.
This shows the importance of comparing credit card terms so you can select the most appropriate offer for your needs.
The offer might shout ‘0% balance & 0% on new purchases’ but what is the time limit; and most importantly, when the 0% period has run out what is the exact interest rate. This will then apply to the transfer balance and new purchases. It is well worth noting that the interest rates on 0% credit cards will be significantly higher than a standard card. It is not unheard of that after the 0% period the rate could climb to 16%. If you don’t realise this you could be left with unexpected charges six months down the line.
How do you know you have avoided the pitfalls and got the best deal? Get the information and compare the competition. Many of the comparison sites such as http://www.creditchoices.co.uk will put all the deals side by side as well as hosting many articles exploding the myths and explaining the small print. These are the resources that will give you the knowledge to get the deal that best suits your needs without any nasty suprises.