How do balance transfer credit cards work?

Last updated: 2 June 2022   By Dr Lucy Brown, Editor

Balance transfer credit cards allow us to move a debt from one credit card to another to access an interest-free rate for a certain period.

Credit card providers offer balance transfers credit cards to new customers, although customers might be able to ask their existing providers for 0% or life of balance credit cards.

When comparing balance transfer deals, customers should look at the transfer fee and the length of time the 0% period will last for, along with the interest rate once the 0% period has come to an end.

However, customers should choose which balance transfer credit cards they want to apply for carefully to avoid their credit scores being affected.

balance transfer credit card graphic

What are balance transfer credit cards?

A balance transfer credit card allows a person to move a credit card debt from one provider to another. This allows them to pay off the remainder of the debt without incurring interest.

These deals are sometimes called 0% transfer deals or 0% balance transfers but they refer to the same type of card - a balance is transferred from one card to another that has an interest-free period.

Balance transfer deals are useful for customers who have come to the end of a promotional period on their credit card and want to move the balance to a new credit card while they pay it off.

They can also be effective for customers who are paying high APRs on their existing credit card when better options are available elsewhere.

As our balance transfer credit cards comparison page demonstrates, some big name providers offer balance transfers including HSBC, Santander and Capital One.

There are three major factors to look at when comparing 0% balance transfers:

  1. The length of time the 0% period lasts for
  2. The transfer fee (usually a percentage of the balance)
  3. The general APR on the card

This last point is important because some balance transfer credit cards will have high rates from the start when it comes to purchases. If a customer is planning to use the card for anything else other than the transfer, it's important to check this rate.

In addition, if we don't pay the balance off during the 0% period, this is the rate we'll be subject when our interest-free period comes to an end.

Another type of transfer credit card that allows money to paid directly into a bank account is called a money transfer or money balance card. These are based on similar principles as we explore in our guide to balance transfers straight to a current account.

What to know about balance transfers

Balance transfer credit cards are designed to give people more time to pay their outstanding debts - for a fee.

The process for a balance transfer looks like this:

  1. A customer applies for a balance transfer credit card and is accepted
  2. They must transfer the balance into the account within a set period (often up to 60 or 90 days) to be eligible for the 0% balance transfer
  3. The fee for transferring a balance will be applied
  4. Once the transfer has completed, the customer can close their old card if they want to (this will not be done automatically)
  5. The customer then has a certain number of interest-free months to pay off the balance on the new card

It's important to pay attention to the small print when looking at balance transfers and be sure to under the different credit card terms and charges that providers use.

There are some specific factors to consider when comparing balance transfers.

How much can you transfer?

The credit limit offered by a balance transfer credit card cannot be used 100% for the purpose of a transfer.

Although the actual limit varies from card to card, it's usually between 90% and 95%, so we can transfer a balance that is up to that amount of our credit limit.

As a simple example, if we have a credit limit of £3,000 and a balance transfer limit of 90%, the maximum amount we could transfer to that card would be £2,700. If the limit was 95%, we could transfer £2,850.

One issue with balance transfer credit cards can sometimes be that we don't know our credit limit until after we have successfully applied for the card.

The credit limit applied to the account will be based on the lender's assessment of our credit history, so don't take the assumed limit advertisements as a strict rule on how much can be transferred to the card.

In addition, there may be a maximum on how much can be transferred to a new card set out as a figure (£1,000 or £5,000, for example). That will be listed in the terms and conditions.

Fees and charges

Many balance transfer credit cards will charge a fee for accepting a balance from another card. Balance transfer deals that don't impose a fee may have other stipulations, so watch out for those.

Usually, we'll see the fee advertised as a percentage of the balance, so we'll be able to easily compare offers from different balance transfer cards.

A lower percentage is often a better deal, but it's vital to look at the transfer fee in connection with how long the 0% period is and what sort of interest rate will be paid after it finishes.

If we're not going to be able to pay off the entire debt within the 0% interest period, the transfer fee will need to be considered alongside how much interest we will be paying on any balance remaining once interest starts to be applied.

Length of 0% period

The length of a balance transfer card's interest-free period is usually the main element customers look at when comparing cards.

A longer interest-free period gives us more chance to pay off the balance, particularly useful if we've been struggling to make a dent in the debt. However, these may come with higher transfer fees or prohibitive interest rates if we don't manage to pay the debt off during the 0% period.

We've been warned in the past that borrowers using balance transfer credit cards can be overly optimistic about paying the balance off within the 0% time limit, and that can lead to us paying hefty interest rates once the 0% deal wears off.

So, ideally, we should aim to find a 0% period that allows us to pay the debt off in full. If this isn't possible, the APR of the card may be more important.

APR after 0% period

While most people taking a balance transfer credit card will hope to pay the balance off in full during the interest-free period, this might not always happen.

At the end of the 0% deal, we could always try to transfer the balance to another card, but it's important to be aware of the APR that will kick in from the end of the 0% period anyway - just in case we can't get another transfer or forget to make arrangements.

Some balance transfer credit cards come with higher APRs than others, so be aware of that when shopping around for the best balance transfer deals.

Using the card for purchases

Balance transfer cards are better at multi-tasking than they used to be. In the past, they came with very high interest rates on purchases, meaning customers could be hit with higher rates if they wanted to buy with the card as well as move their balance.

This has largely settled down and many cards now come with competitive rates on purchases as well, although it's always worth checking.

Some cards may still offer different interest rates on the balance transfer portion of the borrowing and purchases made with the card.

Unless a credit card comes with a 0% deal on purchases as well, any purchases made with the card will be subject to the interest rate applied to purchases.

Following changes made in January 2011, the most expensive debts are paid off first.

If there are different rates on the balance transfer element of the card and the purchase element after the 0% deal wears off, the most expensive debts will be cleared first.

To give an example, if a card has a 20% APR interest rate on purchases but a 25% APR rate on balance transfers following the end of the interest-free period, the balance transfer portion would be paid down first.

It's also worth bearing in mind that lenders may reassess a customer's interest rate based on their personal circumstances. While customers can reject rate increases, they will need to pay off the balance left on the card or arrange a payment plan.

Minimum repayments

All credit cards come with minimum repayments, so we will need to pay a certain amount off the balance each month even if we're not paying as much of the actual balance as we might like.

It's vital that we meet the minimum repayment every month or the provider can say it is a breach of the conditions of the card and demand repayment in full.

The minimum repayment will vary depending on how much of the balance is left and what the credit card provider's policies are.

However, as the point of a balance transfer deal is to pay a balance off during the interest-free period, it's likely we'll want to pay more than the minimum every month to get the balance cleared.

Life of balance credit cards

Some customers may find they are offered a life of balance credit card when they approach an existing provider for help with a balance transfer.

As the name suggests, this type of balance transfer deal doesn't come with a 0% period. Instead, it comes with a low interest rate that remains active until the transferred balance has been cleared in full.

This situation can lead to customers paying more in interest than they might with a traditional 0% balance transfer deal that runs past the end of its 0% period.

In an outright battle of 0% vs life of balance transfer credit cards, most customers would be better opting for a 0% deal - as long as they can clear the balance before the interest-free period is up.

However, in reality, a life of balance deal may be the only option on the table for those struggling to pay off their credit card debts.

Banking groups

One further note for customers looking at balance transfer credit cards: it's not usually possible to transfer a balance from a card held with one bank in a banking group to another within the same group.

For example, a Royal Bank of Scotland (RBS) debt can't be transferred to a NatWest credit card in a balance transfer deal.

This can limit the balance transfer cards available to customers, so read our list of banking groups to understand how that might affect you.

How to get a balance transfer credit card

Many credit card providers offer balance transfer deals as our comparison page demonstrates.

Using our free tool can show which cards are available and what the transfer fee, 0% period and representative APR.

However, remember that the personalised APR rate won't be known until we apply for the card - there's more on what to watch out for below.

As well as comparing balance transfers from multiple providers, it's worth looking a little closer to home.

Balance transfers for existing customers

One of the best places to go for a balance transfer deal can often be providers we already other accounts with.

That's because these providers already know us and have more information about whether they want to supply us with more credit than other lenders.

So, if we have a current account or personal loan with a provider, it's worth contacting them directly to ask if they will offer us a balance transfer deals.

In fact, some balance transfer deals are only made available to customers who have existing accounts with providers. That will be made clear before the application process.

Some of the time, though, balance transfers for existing customers simply won't be advertised and we'll need to contact our provider directly to see if it's an option.

Thanks to live chat facilities on websites, this is less awkward than it used to be. If you've got a current account with a bank and are looking for a balance transfer, start a live chat on the bank's website and ask if a transfer is an option.

Balance transfer with poor credit

Getting a balance transfer deal with poor credit may seem impossible.

The first step should be to talk to any existing providers as mentioned above. This can be the best way of getting accepted for a balance transfer, but if that doesn't work, it's worth looking at any underlying problems with a credit score.

We can do this by accessing our credit reports (either through free trials or by purchasing a statutory report for £2).

These can help us find anything that might be affecting our credit score such as:

  • Errors on our credit report or markers of identity fraud
  • Lack of borrowing history
  • Late payments
  • Financial judgements
  • Lack of stability such as moving home regularly
  • Using more than 50% of the credit we have available
  • Making lots of applications for credit cards

These problems may affect our credit rating and, in turn, affect our chances of getting a balance transfer credit card.

There are steps we can take to repair our credit rating, although these can take time to bed in and we may struggle to get fresh credit in the meantime or struggle with poor rates as part of the so-called poor credit premium.

In these cases, looking at the debt issue in-depth and taking advice on how to get debt-free may be the way forward.

We've also got more information about budgeting, backwards budgeting and the snowball method of paying off debts to help customers get on top of their debts.

Applying for a balance transfer credit card

Once we've decided which balance transfer credit cards would work for us, we can look at applying for them.

There are a few key things to remember when applying for a balance transfer credit card:

  1. Check the conditions on the card (whether it's for existing customers or not)
  2. Look at the transfer fee, 0% period and APR
  3. Don't apply for lots of credit cards

This last point is crucial - if we apply for multiple credit cards in a short space of time, it can show on our credit record and may make it more difficult to be accepted for a balance transfer credit card.

So, compare cards carefully and don't employ a scattergun approach to applications.

Credit limits

As we've already mentioned, customers may find their credit limit is less than the assumed limit and may not be enough for us to transfer the whole amount we wanted.

Even so, transferring as much of the balance as we can to the new card can still us some crucial breathing space to help us address our debts.

It's disappointing to find out the limit is not as much as we would have liked. However, remember the point we raised above - applying for other credit cards to get a better credit limit may adversely affect our credit score.

Summary: Apply carefully

Balance transfer credit cards are an excellent way for borrowers to cut down the amount of interest they're paying on their credit card debt each month and improve their management of their debts.

As well as comparing balance transfer deals, we can also ask our existing providers whether they can offer a balance transfer to help us clear our debts.

Remember to look at the following figures when searching for a balance transfer card:

  1. The transfer fee
  2. The length of the 0% period
  3. The APR once the interest-free period is up

In addition, remember not to apply for too many cards within a short space of time and focus on finding the right card for you, even if the number of deals available on the market will often vary.

It's true we've seen some suspect balance transfer deals in the past that promoted new spending rather than helping us manage our debts. We've also seen interest-free deals blamed for rising levels of consumer debt, although the situation is undoubtedly more complex.

Balance transfer deals are subject to the same rules as other credit cards, so customers will need to pass credit and eligibility checks to be accepted.

Finally, it's worth noting that providers are still required to check on customers they believe might be struggling with persistent debt.

Customers on balance transfer deals should be aware of these rules, even if they only plan to use the card for the transfer and intend to pay off the balance within the 0% period - just in case everything doesn't go to plan.


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