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

which saves more

FOR those who wish to transfer a large amount of debt, there are two stand out options available: the 0% balance transfer and the life of balance transfer.

But which is best? In this guide we explain the big differences between the two cards and offer three ways to compare them to help consumers decide which option is best for them.

We'll also offer some other useful information on existing customer deals, for those who already have a credit card, and look at an alternative option for consumers - card hopping.

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

Understanding the different balance transfer deals out there can be a little intimidating for those with large balances to shift, especially for people who are struggling with a number of different debts.

In a nutshell, balance transfers are the worker bees of the credit card world, offering cardholders the chance to pay down their debt for less, with either 0% interest for a fixed period of time or low interest rates on the life of the balance.

But 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 plus, in the case of low rate for life cards, monthly interest payments.

Here are some of the important differences between the two types of balance transfer deals.

0% balance transfers:

Here are three of the best 0% balance transfer deals currently available:

Balance TransferTransfer Fee
santander all in oneSantander All in One0% for 39 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).
barclaycard platinum 38 month balance transferBarclaycard Platinum 38 Month Balance Transfer0% for 38 months
Representative example: When you spend £1,200 at a purchase rate of 19.9% p.a. (variable), your representative APR will be 19.9% APR (variable).
clubcard balance transferClubcard Balance Transfer0% for 38 months
Representative example: When you spend £1,200 at a purchase rate of 18.94% p.a. (variable), your representative APR will be 18.9% APR (variable).

Life of balance transfers:

Three of the best life of balance deals available at the moment include:

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).
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).
clear rate platinumClear Rate Platinum6.9% p.a. life of balance
No fee
Representative example: When you spend £1,200 at a purchase rate of 6.9% p.a. (variable), with a £24 annual fee, your representative APR will be 11.1% APR (variable).

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

Three ways to compare

Most people take the time to consider a brief outline of the differences between the two deals and, because monthly repayments are already a struggle, decide that no interest is generally better than some interest and pursue a 0% balance transfer deal.

However, this is not always the best option for everyone with large balances to transfer.

Although life of balance transfer credit cards aren't always the answer, they can be far more useful and much better value than they are often portrayed to be.

To help potential balance transfer applicants wade through the options available and make the right decision for them, here are three ways to look at the balance transfer market.

1. Compare real costs, not just deals

For cardholders to move their balance to a promotional card that offers a 0% balance transfer they are often charged a hefty fee, see our guide for details.

It's easy 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, the overall amount will be.

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 that equal monthly repayments are made during the 0% period.

As the table shows, over a period of 12 months a high balance transfer fee can amount to a similar rate to those offered by the lower rate life of balance cards, which don't tend to charge a fee for moving the balance.

In addition to the life of balance credit cards listed above, AA also waive transfer fees:

  • 6.5% p.a. (variable) on purchases and balance transfers
  • No balance transfer fee to pay
  • No annual fee
Representative example: When you spend £1,200 at a purchase rate of 6.5% p.a. (variable), your representative APR will be 6.5% APR (variable).
AA Credit Cards are provided by Bank of Ireland UK. AA Financial Services Limited is a credit broker and not a lender.

Although there are transfer fee promotions, this is a real stumbling block for 0% deals when 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% for the advertised period of time.

Some providers offer 0% rates for as long as 41 months, which is a relatively long period to pay off a balance transfer.

As well as the cards listed in the 0% balance transfer section, the Post Office also offer a 41 month interest free period:

  • 0% on balance transfers for up to 37 months (A 1.99% fee applies and balance transfers must be made within 3 months of account opening.)
  • 0% on purchases for the first 3 months
  • No cash fee on Travel Money at the Post Office with the Post Office Money Balance Transfer Card
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).
Post Office Credit Cards are provided by Bank of Ireland UK. Post Office Limited is a credit broker and not a lender.

These cards are beneficial for people who are able to pay off their balances within the 0% period.

Life of balance transfer credit card rates, on the other hand, are representative rates only. Be warned that 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.

The whole budget will include any number of high priority debts, such as mortgage payments, fixed loan payments and store cards, as well as all other unavoidable outgoings that can cause financial strain.

Adding a 0% balance transfer deal could add further strain to a household budget, particularly because the card should always be paid off in the 0% period. If it is not, the high interest rates that kick in after the 0% period has expired can be difficult to pay off.

Unfortunately, millions of people get caught out by this and end up paying very high interest rates.

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

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 apply for should be based primarily on the amount that can comfortably be repaid each month.

For more help with budgeting, take a look at our top budgeting guides listed to the right.

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.

It is always advisable to compare the application criteria for a realistic 0% deal with a life of balance deal that is also achievable.

Full application criteria will be available on the card provider's website.

It's also a good idea for prospective applicants to obtain a copy of their credit report before applying, especially for those who are unsure of their credit score. See our guide here for more on the cheapest access options as well as how to do this for free.

Remember that applying for a balance transfer card will likely leave a hard search on an applicant's credit file, which makes it even more important to check the application criteria and apply for the card that is most likely to be successful.

Bear in mind that a lot of credit card providers are still very cautious about the applications they'll accept, especially in the case of competitive 0% deals.

Life of balance transfer cards are not necessarily easier to apply for, but the likelihood of acceptance is often higher, particularly for those with a more favourable credit score.

Existing customer deals

Instead of going through the hassle and risk of applying to a new provider, it may be worth speaking to current bank account or savings providers who also offer credit cards.

Existing customer balance transfers are fast becoming a popular 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 hopping

There is a third option for balance transfers that we haven't yet mentioned. Card hopping is when credit card holders hop from one 0% card to the next in order to take advantage of the 0% interest rate offers that providers advertise, moving again at the end of the introductory period.

However, this method is not generally recommended because it is not a long-term solution to debt problems.

Also, the more 0% introductory deals that are taken out the more likely it is that further applications will be rejected, except for those few credit cardholders with outstanding credit histories.

With the chance of rejection very high, 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 to problems within the balance transfer market.

To get the most out of this market, it is advisable for prospective applicants to carefully consider the pros and cons of 0% balance transfers and life of balance transfers, and analyse how the monthly repayments would fit into their household budget.

The aim is to reduce overall debt burden, so always keep this in mind.

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