Balance transfers are one of the most sophisticated ways of saving money on a credit card. They do come with a number of catches that have to be borne in mind and these include balance transfer fees.
A balance transfer offer is when it is possible to get a lower interest rate on the balance that is transferred from another credit card than the credit card interest rate. Sometimes a fee is charged on a balance transfer offer. This is known as the balance transfer fee. It is most often worked out as a percentage of the balance that is transferred on to the credit card.
Banks and other credit card issuers spend a lot of money selling credit cards. A balance transfer offer makes sense as this can be lower than the marketing and advertising costs, and the credit card company can share some of the savings with future consumers. In most cases a balance transfer offer is only available when a credit card user does not have an account already with the issuer.
The usual range of a balance transfer fee is from 1% to 3% of the balance that is being transferred on to the card. In most, but not all, cases this will be limited to a certain amount. If there is no cap on the fee then this will add a large amount to the cost of the transfer.
Most balance transfer fee cap will be between $25 and $100. If there is a cap of $75 and a balance transfer fee of 2%, then the 2% charge will apply to any money up to $3,750. There will then be no difference between whether $3,750 or $100,000 is transferred.
There are a large number of 0% deals on credit cards when there is an interest free period of up to fifteen months. If the balance is repeatedly transferred between cards without triggering any penalties or interest then the card holder can enjoy a very large interest free loan.
A high balance transfer fee can reduce the benefit of zero per cent balance deals. When considering balance transfers these should be added to the interest and charges on the card. If an interest free or low interest offer is only available for a short period then this will add considerably to the overall cost.
The cap on the balance transfer fee is the most important feature of a balance transfer fee and not the percentage rate. If that is remembered then there will be few problems.
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