Research by credit specialist TotallyMoney and MoneyComms has warned that lenders are putting the squeeze on introductory 0% interest cards for balance transfers. Consumers looking to take charge of their debt in the new year may struggle to find a deal that lasts long enough to clear their debt interest-free.
The research shows lenders are shrinking the balance transfer honeymoon period, after which the enticing 0% interest rate disappears and a much higher rate kicks in. It suggests lenders are eager to recoup their money in less time, but that leaves consumers at risk. If they don’t pay off their debt by the deadline, they could incur punishing interest rates that trap them in a cycle of debt.
Customers seeking the best 0% deal to ring in 2020 should move fast — before lenders cut the honeymoon period even further. Every January, consumers resolve to take control of their finances. In January of the last three years, consumers made over 700,000 balance transfer deals, adding up to over £1.5bn.
Whether they’re tightening their belts after Christmas spending or simply trying to regain control of their finances, 0% offers can help, if used sensibly.
Despite one-off fees and fewer months at the 0% rate, balance transfers are still worth considering. The average consumer would save the cost of their transfer fee in just over seven weeks† of not paying 19.9% APR — and still enjoy months of additional savings from zero interest charges.
However, despite today’s average term of 17.9 months with zero interest being tempting, it is significantly lower than before.
Just two years ago, credit card companies granted up to 43 interest-free months, but today’s maximum is just 29 months. That could mean 15 extra months of paying interest, a cost of £621.87.
With fewer months at the 0% rate, consumers now have less time to pay off debt without penalty.
The stress of rising debt is only part of the problem. Many people rely on 0% borrowing just to stay afloat. The reduction in 0% deal terms could be a ticking time bomb for some consumers.
Even though the 0% market is less attractive as interest-free periods shrink, there is no let-up in demand, with over half a million transactions each month, valued around £1.2 billion.*
Alastair Douglas, CEO of credit experts TotallyMoney, said “Many consumers act decisively to take control of their finances as the new year begins. Transferring their balance to a 0% card can help them ‘catch up’, giving them time to pay off their balance without spiralling interest charges.”
“This year, with lenders squeezing the number of months they offer a 0% introductory rate, customers will be under pressure to pay off their debt more quickly. They need to be even more savvy about finding the right deal, to get the maximum breathing space, free from interest charges.”
“Those looking to get a balance transfer card should start by checking their eligibility. They will learn how likely they are to be accepted, and prevent damage to their credit rating as a result of being rejected.”