It makes sense to make use of balance transfer credit cards especially for those who has huge debts or those who have several debts in several cards. For the former, transferring enormous loan balances to another card would allow them to have lower interest rates for a longer period of time or 0% interest rate for a short period of time, depending on how he intends to pay his loan. For the latter, the consumer may consolidate all his loan balances from different banks into one credit card thereby making the loan payment more manageable and organized.
So how does this balance transfer work? Balance transfers are basically transfering one credit card balance to another credit card that would allow for a much better interest rate and longer duration. There are three main features that the consumer should know about a credit card balance transfer scheme. These three are the transaction fee, the payment duration and the interest rate. The transaction fee is the fee that the credit card charges every time there is a balance transfer transaction.
The most common fee rate in the market is from a range of 2% to 3%. Some of the worst credit cards charge up to 5% transfer fee and there are those who do not charge any fee at all. The payment duration is the term or period of payment of the loan balance being transferred. It could be a period of six months to as long as 5 years. The interest rate or the offer rate is the interest that the credit cards charge the customer with. This is the lifeblood of the issuing banks. This is where they get most of their profits. The average annual percentage rate (APR) for balance transfer transactions is 17.27% or a mere 1.43% monthly rate. This APR needs to be lower than the normal interest rates charged on usual purchases. Otherwise, the card issuer will not be able to lure customers to transfer their loan balances to another credit card.
Nowadays, banks has modified these balance transfer features and came up with more tempting schemes. Three of these schemes are the teaser rate offer or what is more commonly called the “0% interest on balance transfer”, the fee-free offer otherwise known as the “0% balance transfer” and the fixed-life-of-loan rate offer also called “lifetime balance transfer”. The teaser rate offer works in such a way that the credit card where the loan balance is transferred will not charge the consumer any interest for a certain period of time, which is usually 3 months or 6 months. However, if the consumer is really good at scrutinizing the various credit cards available online, he will be able to find cards that offer a 0% interest payment period of up to 16 months.
When the period expires, an interest rate, which is usually higher than standard, will be applied on the loan. The 0% balance transfer simply refers to the transaction fee earlier mentioned. Some cards waive this fee in order for customers to get attracted to transfer their loans to these cards. The last is the lifetime balance transfer. This feature does not really offer a lifetime promotion rate. It actually caters to customers with huge debts and prefer to pay their loans over a longer period of time with a low, flat interest rate. The payment term offered for this scheme can be as short as 1 year and as long as 5 years. The interest rates for this type of loan is usually the lowest in the market and is applied uniformly until the loan is fully paid.
With all these information available online, it will now be easier for the consumer to pick out the card that would best suit his lifestyle.
Tags: balance transfer credit cards, Balance Transfers
