Credit card providers are engaged in a heated battle, falling over themselves to get your business by offering bigger and better deals. The major players in the balance transfer market have been embroiled in a steady game of one-upmanship for some time, and where one goes, the others are sure to follow.
Nationwide Building Society made its move by launching a new interest-free term of 26 months last week. The next day, Barclaycard went one better by extending the length of its balance transfer period to 28 months – the longest interest-free period ever seen.
"This move by Barclaycard shows just how competitive the balance transfer credit card market is at the moment," says Gocompare.com credit card expert Matt Sanders. "It will be interesting to see which credit card company will make the next move to try and match this product."
The balance transfer market as a whole is more competitive than even before the credit crunch. In July 2006 the best offer was 12 months at 0 per cent, according to analysts Defaqto. By July 2008 it had crept up to 16 months, still nowhere near the 28 months available today. We also have more cards offering longer periods of 0 per cent interest for purchases – in 2008 only 1.2 per cent of cards offered purchase periods of 12 months or longer, compared with 19.3 per cent of cards in 2013.
"For purchase cards there is also a lot of competition, with 0 per cent purchase rates available for as long as 18 months at the minute, although six to 12 months is typical and three months the most common," says Brian Brown, head of banking at Defaqto.
Personal loans are looking cheap too, with interest rates for larger loans seeing a marked decrease – the cheapest loan available in July 2008 for £10,000 over 60 months was 7.3 per cent, but the same loan costs from just 4.9 per cent today.
Some best buys aren't around for long. Tesco Bank's fee-free Clubcard Credit Card, with 12 months at 0 per cent, was pulled after three weeks. New customers are now charged 0.9 per cent to transfer a balance. This is still one of the lowest fees on the market, but the trade-off is that competitors are offering deals more than twice as long.
That being said, if you are confident that you can pay off your debts in one year, this is a good way to give yourself some breathing space without paying over the odds for the privilege. Fees are always worth paying attention to. If you were paying 3 per cent to transfer a balance of £3,000 that would cost you £90, but this would fall to just £27 if you were paying Tesco's 0.9 per cent fee. Similarly, Barclaycard's headline 28-month card has a 3.5 per cent handling fee, but it also offers a card with 27 months at 0 per cent for balance transfers with only a 2.99 per cent fee – if you need the extra month to clear your debt, paying a little more to shift it is probably worthwhile, but realistically, one month is unlikely to make a big difference.
As well as handling fees, you should check the rate of interest payable after the introductory period. You should always aim to clear your debt before this kicks in, but it's worth noting that while balance transfer fees are down, representative APR rates have been creeping up with average rates currently standing at 18.7 per cent, up from 16.44 per cent in 2009, according to MoneySupermarket.
Above all, remember that just because a card is advertised with an attractively long 0 per cent window, it doesn't necessarily mean you'll get it. Headline-grabbing APR's and introductory periods are often reserved for applicants with a clean credit record.
"One good thing about the Barclaycard range is that their website allows customers to see (without affecting their credit score) which cards they are likely to be considered for before they apply. You need to put in some personal details, but it isn't as bad as a full credit application," says Mr Brown.
Charlotte Nelson of Moneyfacts.co.uk says: "Many low rate deals are available online, but some deals are only available to existing customers. Check the small print too – only 51 per cent of successful applicants are given the headline APR rate."
Good use of credit cards is all about planning ahead so if you've successfully applied for a credit card, make sure you pay at least the minimum amount back every month. Mr Brown says: "If you have an offset mortgage consider using a 0 per cent purchase card to keep your cash in an offset savings account until the offer period runs out – then pay the card off immediately with your savings. In the meantime you have been earning interest on their money."
The competition: Market leading
TOP BALANCE TRANSFER CARDS
Card name Barclaycard Plat 28 Month Balance Transfer (Visa)
0% Intro term 28 months
Intro balance transfer fee 3.5%
Purchase APR 18.9%
Card name NatWest Platinum Credit Card (Mastercard)
0% Intro term 27 months
Intro balance transfer fee 3.1% Min £5
Purchase APR 18.9%
TOP INTRODUCTORY PURCHASE CARDS
Card name Tesco Bank Clubcard Credit Card for Purchases (Mastercard)
0% Intro term 18 months
Purchase APR 16.9%
Card name Halifax purchase Credit Card (Mastercard)
0% Intro term 17 months
Purchase APR 16.9%
TOP LOANS £5,000 OVER 3 YEARS
Hitachi Capital (UK) PLC
Monthly repayment £152.82
Total payable £5,501.52
Monthly repayment £153.47
Total payable £5,524.92
Source - Moneyfacts.co.uk
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- Nationwide Building Society