0% or life of balance transfer credit card: which saves more?

which saves more

There's no credit card deal, for our money, as rewarding as a balance transfer but what's better: a life of balance transfer or a 0% deal?

In this guide, we look at three ways to answer that question (skip ahead).

First, though, let's clear up the differences between these two deals.

Life of balance and 0%: what's the difference?

All balance transfers are the worker bees of the credit card world, offering cardholders the chance to pay down their debt for less.

It's not charity, by any means. Credit card providers have long-term business to gain when they take on a moved debt and they also benefit in the short term by taking a fee and, in the case of low rate for life cards, monthly interest payments. Here are some other important differences between them.

0% balance transfers:

Balance TransferTransfer Fee
santander all in oneSantander All in One0% for 43 months
Representative example: When you spend £1,200 at a purchase rate of 15.9% p.a. (variable), with a £36 annual fee, your representative APR will be 21.7% APR (variable).
aa balance transferAA Balance Transfer0% for 41 months
Representative example: When you spend £1,200 at a purchase rate of 18.9% p.a. (variable), your representative APR will be 18.9% APR (variable).
AA Credit Cards are provided by Bank of Ireland UK. AA Financial Services Limited is a credit broker and not a lender.
mbna platinum 41 month balance transferMBNA Platinum 41 Month Balance Transfer0% for 41 months
Representative example: When you spend £1,200 at a purchase rate of 18.9% p.a. (variable), your representative APR will be 18.9% APR (variable).

Life of balance transfers:

Balance TransferTransfer Fee
lloyds bank platinum low rate credit cardLloyds Bank Platinum Low Rate Credit Card5.69% p.a. life of balance
Representative example: When you spend £1,200 at a purchase rate of 5.69% p.a. (variable), your representative APR will be 5.7% APR (variable).
halifax flexicardHalifax FlexiCard6.45% p.a. life of balance
No fee
Representative example: When you spend £1,200 at a purchase rate of 6.45% p.a. (variable), your representative APR will be 6.4% APR (variable).
low rateLow Rate6.45% p.a. life of balance
Representative example: When you spend £1,200 at a purchase rate of 6.45% p.a. (variable), your representative APR will be 6.4% APR (variable).

Search for more 0% and life of balance transfer deals on our main comparison table here.

Three ways to compare

This run down between the two is generally as far as most people get. 'No interest is better than some interest' they say, and jump off to compare the credit card market's most competitive deals.

We think that's sometimes a mistake, though.

Life of balance transfer credit cards aren't always the answer but they're far more useful, and better value, than they're often portrayed to be.

We hope the following three new ways of looking at balance transfers will show that.

1. Compare real costs, not just deals

Cards that offer 0% balance transfers now charge a hefty fee, see our guide for details, for cardholders to move a balance to their promotional rate.

We tend to think of this as a simple lump sum, which makes it a lot more attractive than an interest rate where it's not clear how much, exactly, you'll end up paying.

Instead of thinking of the fee as a lump sum, however, try to think what the equivalent would be if that fee was expressed as an interest rate.

For example:

0% period 6 months 9 months 12 months
2% balance transfer fee 7% p.a 4.9% p.a 3.7% p.a
3% balance transfer fee 10.7% p.a 7.4% p.a 5.6% p.a

These calculations assume an initial transfer of £1,000 and then equal monthly repayments to repay during the 0% period.

As you can see, even over a fairly long period a high balance transfer fee can be as expensive as a lower rate card that doesn't charge a fee for moving the balance.

Although there are transfer fee promotions, this is a real stumbling block for 0% deals.

On the other hand, life of balance deals are often available without fees.

The flip side is that the 0% rate, as long as the application is accepted, will definitely be 0%.

Life of balance transfer credit card rates, on the other hand, are representative rates only: under law, lenders are only obliged to offer those rates to 51% of those that apply so the actual rate could be higher than the advertised APR.

Under the lending code, credit card providers cannot increase this rate in the first 12 months. If they increase it subsequently, cardholders have several rights surrounding rejecting rate increases.

2. Consider the whole budget

Another useful way to think of balance transfers is to consider the options in the context of a whole budget.

For those with a number of high priority debts (mortgage payments, fixed loan payments) or other unavoidable outgoings that can cause financial strain adding a 0% balance transfer deal, which should always be paid off in the 0% period, is another strain again.

On the other hand, some people know that the restriction of a limited period during which the debt must be repaid in full would help motivate them to make regular payments and ultimately clear the balance.

Remember: millions of people end up paying interest after intending to pay off at 0%. It's not unusual to fail but it is damaging.

Remember that a balance transfer is a tool to eliminate debts.

The ultimate goal should always be to reduce financial strain and, for that to happen, the decision about which deal to take should take into account individual preferences as well as being realistic about the amount that can afford to repaid each month.

3. Consider application criteria carefully
and check for existing customer deals

Finally, application criteria should be no small consideration for those deciding between a 0% and life of balance transfer credit card.

Credit card providers are still very cautious about the applications they'll accept, especially in the case of competitive 0% deals.

One particularly heavily advertised 2011 deal was said to accept less than 40% of its applicants and Uswitch research from 2009 found that 57% of balance transfer credit card applications were rejected.

It's not the case that life of balance transfer credit cards are necessarily easier to apply for, just that comparing the benefits of a long 0% deal and a low interest rate is often misleading.

Instead, compare a realistic 0% deal with a life of balance transfer deal that is also achievable by checking the full application criteria on the provider's website.

That will give a much better idea of the savings to be made on the current debt.

Additionally, it can often be worthwhile to obtain a copy of your credit report before applying if you're unsure of your current credit standing. See our guide here for more on the cheapest access options as well as how to do this for free.

Existing customer deals

Another way around this problem is negotiating a balance transfer.

Approaching a current credit card provider or speaking to a long-term bank account or savings provider that also offers credit card deals is less risky and can result in genuinely good deals.

Existing customer balance transfers are fast becoming a popular and, in some cases even institutionalised, way of refinancing a debt to save money on interest repayments and, ultimately, clear borrowing altogether.

See our guide for more information on the deals available.

Card providers also sometimes offer these deals 'proactively' without cardholders asking for them (see an example here) but this is fairly rare and, in any case, hard to plan for.

Card tarts

You'll notice that we haven't mentioned the possibility of what has traditionally been a third way between 0% balance transfer and life of balance transfer credit cards: moving to a 0% deal and moving again at the end of the introductory period.

Or as we called it in the good old credit happy days of the nineties: being a credit card tart.

That's because in today's credit environment we feel this strategy is now too risky for all but a few credit cardholders with outstanding credit histories.

The chance of rejection is now very high and, at that point, cardholders would be left repaying their debt at a very high interest rate until, and if, they could find another 0% deal.

Those with a poor credit history or who are fairly new to credit are especially vulnerable and the balance transfer market is a particularly tough nut to crack.

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