Warning urges borrowers to take care with 0% balance transfer credit cards

Warning urges borrowers to take care with 0% balance transfer credit cards

author: Dan Griffiths

By Dan Griffiths

Recent research by consumer rights group Which? has suggested that advertising for 0% APR balance transfer credit cards may be misleading.

Which? argues that it is not clear that you could still have to pay a fee to transfer your balance, as the 0% APR suggests the service is entirely free.

The research was carried out as part of the group’s Stop Sneaky Fees and Charges campaign. They want companies to make fees upfront, fair and easy to compare.

Getting to grips with balance transfer credit cards

In the research, credit card owners were asked to work out how much a balance transfer would cost, and to compare five credit card deals.

From this, Which? found that just 4% of card owners actually understand how much a 0% APR balance transfer credit card costs. Of this figure, seven out of ten people believed – despite having the fee shown to them – that the balance transfer was free, which is untrue.

When asked to compare five credit card deals to pick the cheapest option for making a balance transfer and nothing else, only just over a third of card owners got the answer right. A further third (35%) chose the credit card with the lowest APR, which would normally be the right answer if the card was to be used for spending. However, as the card this group chose had a higher balance transfer fee, they would have paid over three times as much as those who picked the cheapest credit card (£123.02 instead of just £33).

According to Which?, one in five people who took a new credit card in the last two years were doing so in order to make a balance transfer. This figure makes the research even more concerning, as it’s likely many people could be caught out by fees they didn’t anticipate.

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Important things to remember

It’s easy to get drawn in by introductory offers that seem enticing at first, but it’s really important to make sure you know exactly what you’re getting into before you apply. It’s not just credit cards that this applies to either, as it covers any form of credit, including mortgages and loans.

You should always make a conscious effort to read the terms of any agreement before you apply. It may seem boring, but not doing so could land you with charges or fees you weren’t expecting.

If you are on the hunt for the cheapest balance transfer credit card, you should look out for cards that state they are ‘fee-free’ as well as those for low APRs and then compare the actual cost of both before making your balance transfer. Although the APR is important as it tells us the overall cost of borrowing - including any interest and fees - it does not include the balance transfer fee as this is typically calculated separately as a percentage of the balance you are transferring over.

In addition to this, many cards are advertised as having a smaller balance transfer fee than you would initially pay. This is because some lenders may charge a full 3% fee up front, but then refund you the difference within a specific time period – typically 90 days. This is something to watch out for if you are considering a balance transfer card, especially if you are on a tight budget. 

Disclaimer: All information and links are correct at the time of publishing.

author: Dan Griffiths

By Dan Griffiths

Warning urges borrowers to take care with 0% balance transfer credit cards Warning urges borrowers to take care with 0% balance transfer credit cards