Business

Choice of interest-free balance transfer cards now at record low

Credit card borrowers who rely on shifting their debt from one interest-free deal to another could face a tougher struggle, as the number of balance transfer offers with this feature has fallen to a record low

CREDIT card borrowers who rely on shifting their debt from one interest-free deal to another could face a tougher struggle, as the number of balance transfer offers with this feature has fallen to a record low, according to a website.

The findings from Moneyfacts.co.uk could spell higher costs for people in persistent debt - many of whom may be used to jumping from one 0 per cent deal to another when their initial interest-free period ends.

Moneyfacts, whose credit card data goes back to 2006, said the number of balance transfer deals on the market which have an introductory zero-interest period has fallen to its lowest level, standing at 87 in September, down from 101 in June.

Interest-free balance transfers are a way to make the cost of debts cheaper. They allow people to move old debts to a new card, with 0 per cent interest for a set period. This helps to keep the cost of the debt down, although any fees for transferring the balance need to be weighed up.

Borrowers should also aim to clear their balance before the 0 per cent initial period ends - after which time the cost of the debt could rocket.

But doing this may become more difficult as Moneyfacts' figures also show borrowers now typically face a shorter interest-free period on balance transfer deals before charges start to kick in.

As well as a dwindling choice of deals, the average length of initial interest-free periods has also fallen.

The average interest-free term is now 581 days, down from 632 days at the start of the year, Moneyfacts found.

The cost of making a balance transfer has risen sharply, with the average introductory fee hitting 2.2 per cent this month, Moneyfacts said.

The findings come at a time when borrowing costs generally are on the up, with the Bank of England base rate having increased in August.

Some recent strong growth in households' non-mortgage borrowing has sparked concerns that some people may be in danger of over-stretching their borrowing.

But Bank of England figures released last month showed the annual growth rate of consumer credit - which includes borrowing on credit cards, overdrafts and personal loans - slowed to 8.5 per cent in July - its weakest growth in nearly three years.

Despite the slowdown, the Bank said the growth rate remains "elevated" compared with 2009 to 2012.

Rachel Springall, a finance expert at Moneyfacts.co.uk, said: "It's clear to see that the credit card market is adapting to economic pressures and growing scrutiny regarding consumers with persistent debts.

"Credit card providers have diluted their enthusiasm to offer table-topping interest-free balance transfer offers over the last few months, resulting in the number of deals with this feature falling to a record low of 87, down from 101 in June.

"If lenders continue to tighten their interest-free offers, the cost of persistent debt will only escalate further and could result in customers paying out more in balance transfer fees, time and time again.

"These fees are on the rise, up from 2.04 per cent on average in January to 2.2 per cent today."

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