If you already have a credit card and come across a more attractive offer, you may be tempted to leave your current lender and move to the new product.
Maybe it’s got a lower APR, maybe the interest free period is longer, maybe the interest free period on your current product is coming to an end and that’s why you’re searching the market for a better deal.
Whatever it is that lures you away from your current lender, when you do switch to a new credit card product, it’s common to be charged for doing so - known as a ‘balance transfer fee’.
Put simply, this is a fee for moving the balance (i.e. your debt) from your existing card to a new one.
What’s the damage?
The amount you’ll be charged to do this varies from lender to lender – with no hard and fast rule on how much it’ll be.
As a rough ball park figure, you can expect it to be around 3% - though this does vary, so make sure you check first. The new lender, rather than your current one, applies the fee.
It means typically for every £100 you transfer on to the new card, you’ll be charged £3 – which doesn’t seem like a lot at first glance. But if you have a card with quite a big balance on it, it can tot up quite quickly.
"Not every lender charges a fee."
Not every lender chooses to charge this fee – you may have heard the term 0% balance transfer, which is where the new lender does not apply this fee for moving the money on to the new card.
Often where this is the case, the APR can be higher, so again just make sure that you’re aware of exactly how much you’re paying before you sign up and check out what that APR rate is.
Stick or twist?
It’s easy to see a credit card with a great introductory offer, low APR or no fee for transferring your balance – whatever the great deal, you might see it and want to move your balance right away.
But don’t get caught out! It’s easy to get lured in by lenders’ low APRs and introductory offers but try not to be tricked. Naturally, you’d want to get the best product out there but it doesn’t always work out as good as what you see advertised on the surface.
While the APR on the new product may be lower, when you factor in the transfer fee, it may end up costing you more in the long run so it wouldn’t make sense to switch.
Do the maths!
You’d need to sit down and work out whether it is in fact cheaper, or, once you’ve included all the fees, more expensive for you to move the debt.
And don’t just think in the short term. Many lenders offer a lower interest rate for the first few months, which then jumps up.
The best thing to do if you’re unsure, is ask the questions. Find out exactly what you’ll be paying for how long and just spend some time considering what is best for you.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.