Moving your balance from a credit card that is charging you high interest on your borrowings can possibly save you hundreds of £ in interest payments, but what are the risks?
One problem facing would be switchers, is the possibility of a high fee to actually move the balance.
Balance transfer fees are now added to many credit cards, even to some 0 balance transfer cards. Often this is in the form of a % of the transferred balance, but sometimes can be a set fee.
Some lenders do cap the limit of the fee however.
Balance Transfers and Hidden Costs
Many people may not realise that with a relatively high percentage of balance transfer offers, a higher rate of interest may be charged on any new purchase, when compared to the low interest, of no interest deal on the balance of the transfer. It may even be in the terms of the offer that you have to clear the transferred sum in full before your repayments start to pay off the (new) purchase balance, which does incur an interest charge.
The term used to describe this type of repayment structure is ‘Negative Order of Payments’.
Some card providers may not use this model, and may offer a much better deal for would be balance transfer card holders, allowing them both 0% on balance transfers, and also 0% on new purchases.
This is just one of the reasons it is very important to compare credit cards before applying.
Even with 0 balance transfers and 0% new purchases card as described above, it is well worth making sure you know the exact interest rate once the 0% period has run out… both for the transferred amount, and for new purchases.
The reason for this is that many 0 balance transfer or 0% on purchases credit cards have an interest rate that is substantially higher than their standard interest rate, so if you are not careful, you can easily get stung than higher than expected interest.
In fact, it is not unknown for 0 balance transfer cards to have interest rates outside the 0% offer that are as high as 16%.
If you are a little worried about taking all the above points into consideration, pay a visit to one of the comparison sites, such as http://www.creditchoices.co.uk, where you can find a wealth of articles about related subjects, but also the tools and resources to enable you to compare various offers, and get the deal that suits you the best.
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