Why the longest Balance Transfer is not always best
0% balance transfer offers with the longest term are not necessarily the best. Find out why, and learn how to choose the right option.
24 Mar 2022 - 3 min read
Balance Transfers are a popular tool for reducing an existing credit card balance and minimising interest payments. Equally, they are one of the most popular tools used by credit card providers to win customers and market share.
Competition in the Balance Transfer market is stronger than ever, with many providers now offering 0% Balance Transfers for 24 to 36 months. However, beyond the headline offer, key differences in Balance Transfer offers and the credit cards that feature them, mean that the best option is not always obvious.
Consider the following two Balance Transfer offers:
- 0% Balance Transfer for 36 months
- 0% Balance Transfer for 24 months
The first offer is clearly better, right? Not necessarily. Other key features, including the credit card’s annual fee, interest rate on purchases, the interest rate that the Balance Transfer reverts to at the end of the promotional period, and Balance Transfer fees, may make the second option a better choice.
To demonstrate, consider a customer who transfers their existing $5,000 balance to a new credit card, closes their old card, then continues to make purchases on the new card. Over three years, here’s how the two different Balance Transfer offers could compare:
| Offer | Option 1 | Option 2 |
|---|---|---|
| Balance Transfer offer | 0% for 36 months | 0% for 24 months |
| Annual Fee | $99 | $49 |
| Purchase Rate | 19.9% p.a. | 11.9% p.a. |
| BT Revert Rate | 19.9% p.a. | 11.9% p.a. |
| 3 Year Cost | ||
| Annual Fees | $297 | $147 |
| Interest | $1,451 | $1,165 |
| Total Cost | $1,748 | $1,312 |
| Additional Cost | +$436 |
Although option 1 offers 0% on Balance Transfers for an extra 12 months, its 19.9% p.a. Purchase Rate and higher annual fee means that this offer is likely to be a significantly more expensive option for this customer.
This is a relatively simple example. Comparisons get more complicated when other differences, such as Balance Transfer Fees, and even International Transaction Fees need to be taken into account.
You can take advantage of Stay or Go to simplify this comparison. Get started here.