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15/01/14

Balance transfer offers are not always what they seem

Credit card providers have been engaged in an all out assault in recent weeks to offer the best 0% deal terms, with Barclaycard currently winning the battle of the balance transfer market with its mammoth 31 month deal.

The level of credit card debt topped £57bn in September last year, helped in part by the plethora of balance transfer deals encouraging consumers to switch their debts.

However, research from Consumer Intelligence suggests that the advertised deals are not always what they seem as not everyone who applies for a balance transfer card will get the advertised deal. In the past two years, as many as one in ten credit card applicants, more than 1.1m people, are not getting the the full introductory term advertised, and are instead being offered a shorter interest-free period.

Furthermore, 11% of credit card borrowers who managed to get the full introductory term advertised on the balance transfer card were not able to transfer the full amount they wanted to.

Rules set out by the Office of Fair Trading ensure that credit card companies have to offer their advertised APR to at least 51% of applicants, however these regulations do not extend to the length of the deal offered.

David Black of consumer intelligence commented: “The balance transfer wars between credit card providers with card firms competing on length of 0% offers and even balance transfer fees has been great news for borrowers.

“However, applicants need to be aware before applying that the best deals are only available to those with good credit histories and that they may not receive precisely what they are applying for.”

A spokesperson for Barclaycard said: "Around 90% of card applicants receive the full period they apply for. In a small number of cases, where they don’t have a high enough credit score, we may offer them a shorter but still significant period of zero per cent interest.

Consumer Intelligence also found that 34% of those with balance transfers failed to repay within the 0% period.  Up until a few years ago, you could transfer any remaining debt with reasonable confidence to a new provider, so called rate tarts were common. However, following the credit crunch credit card acceptance rates have plummeted and it is no longer a sure bet you'll be able to find a new provider willing to take you on..

"A lot of may try to roll over to another 0% deal and they may or may not be available," David Black of Consumer Intelligence said, speaking on BBC Breakfast about the survey results. “The banks are being much more careful about who they'll lend to. So they'll look at your income, your level of indebtedness.”

The average balance at the end of such deals is £2,400 according to Consumer Intelligence.

David Black from Consumer Intelligence said: "Once a 0% deal ends, the interest rate goes up dramatically. They're a good way of borrowing money if you're disciplined. The credit card companies are really keen to get new customers and this is one of the primary ways that they do so by offering what, on the face of it, is a very generous 0% deal.”

The research also reveals that some people are having their deals being terminated midway through,   with one fifth of people having their 0% rate cancelled due to problems making payments.

David Black, Consumer Intelligence: Most credit cards will have terms and conditions which say that the 0% deal will stop applying if you don't make the minimum monthly repayment, if you don't repay enough of it, if you miss a payment or if you exceed your credit limit so any of those reasons could lead to it being terminated during the deal. A lot of people are trying to pay their debt down, but there are an awful lot of people that just simply can't so it's a big problem and many, many people are just basically excluded from mainstream credit and won't be able to get a credit card anyway.”