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“The most competitive 0% balance transfer credit card in the UK is now even more attractive – it now offers 0% for 16 months. However, it’s not the only deal that’s improving – so which card is right for you?”
Loan rates may be rising but at least there’s one form of borrowing where the terms for consumers just keep getting better – credit cards.
Capital One has been the dominant player in the market for several months offering the leading 0% balance transfer card and the leading 0% purchase card. However, now its deals have become even more enticing: the Capital One Balance Transfer Exclusive now offering 0% on balance transfers until December 1, 2009; and the Capital One Platinum now offering 0% on both balance transfers and purchases until November 1, 2009.
However, Capital One isn’t the only mover in the market. Tesco has increased the interest-free period on balance transfers from 13 months to 14 and extended the 0% offer on purchases from three months to six.
Egg is also offering an improved version of its credit card which is available during August. It is offering 0% on balance transfers until October 1 2009 and 0% on purchases until November 1 2008, with a 3% handling fee and a typical rate of 16.9%. And Mint has extended its offer to 0% on balance transfers until September 1 2009 and 0% on purchases until February 1 2009, replacing the previous terms that were set until August 1 2009 and January 1 2009, respectively.
With so many great deals to choose from how do you know which to pick? The key is to think about how you use your credit card.
Leading deals for if you want to clear a credit card balance
If you have a large existing balance on a credit card then you need to find a deal with a lengthy 0% introductory offer on balance transfers. That way you can move your existing balance over to a new card and pay no interest for the length of the 0% term.
The leading deal is the Capital One Balance Transfer Exclusive with 0% on balance transfers until December 1, 2009, a 3% balance transfer fee. This means you have 16 months in which to chip away at your debt knowing that you will not have to pay any interest. However, this card should not be used for spending on as well.
In addition to offering an interest-free period on balance transfers, this card also has a 0% offer on purchases, but only until December 2008. Thereafter, interest will be applied at the standard rate which of 16.9% (or 15.9% if you apply for this card through easyMoneycom).
Like most credit card providers, Capital One uses a payment hierarchy whereby the payments you make each month go towards repaying the transferred balance before the balance for purchases. This means that once the interest-free period for purchases has ended, you will not start paying down that debt until the balance you moved over from your old card has been totally repaid. In the meantime, you will be charged interest.
Another option for those wanting to pay off an outstanding credit card debt is the Virgin Credit Card which offers a 15-month interest-free period for balance transfers. The transfer fee on this product is 2.98%. Again, you should avoid spending on this card as the interest-free period on purchases lasts just three months, and the typical standard rate is 15.9%.
Nearly all of the leading cards have balance transfer fees in the region of 2.5-3%. However, if you want to avoid a transfer fee and can repay your debt the Abbey Zero Card, which offers 0% on balance transfers for six months, with a typical rate of 18.9% has no such fee.
The best if you want to spend and clear a credit card balance
Because of the payment hierarchy used by most card providers, as mentioned above, anyone wanting a card to spend on as well as transfer a balance onto, needs a card that offers an interest-free period which runs for the same length of time for both purposes.
A card that offers 0% on both balance transfers and purchases will help you steer clear of this problem. Again, Capital One leads the field in this category. Its Platinum card offers 0% on both until November 1 2009, with a typical rate of 14.9% and a 3% balance transfer fee.
Another option is the Halifax Online Special with 0% on purchases and balance transfers for 10 months. The standard rate at the end of the interest-free period is 15.9%.
What if you clear your balance every month?
Not everyone uses a credit card for borrowing. If you’re able to clear your balance every month then the rate of interest is irrelevant. Instead, you should look for a card that rewards your spending such as a cashback or loyalty reward card.
Think about how and where you spend money regularly in order to find the best deal for you. For example, the Shell Mastercard from Citi has a timely offer for motorists with a 3% rebate on Shell fuel spend and 1% on other purchases. There are also cashback cards available from supermarkets including Tesco.
However, you may prefer a more general cashback card such as the American Express Platinum Money Back Credit Card, which offers 5% money back on spend up to £4,000 during your first three months; then a standard money back rate up to 1.5%.
Options for those who have a large debt to repay
For cardholders that have a large debt or don’t trust themselves to move to another card at when their 0% offer ends, a life-of-balance credit card could be the solution.
While the cheapest personal loan has a rate of 7.6%, there are a number of credit cards offering rates of less than 7% for the life of the balance. The leading life-of-balance transfer card is the Citi Platinum Life of Balance Card just 5.8%, but Leeds building society is offering a rate of 5.9% and Barclaycard has two deals offering low rates for life: its Life of Balance card has a rate of 6.5%, while Barclaycard Simplicity has a rate of 6.8%. The balance transfer fees on all of these products are relatively low as well. Leeds charges 2%, while the Citi and Barclaycard deals charge 2.5%.
What if your credit score isn’t great?
Many of the deals mentioned above are only available to those with good credit scores. If your credit history is less than perfect there is no point in making applications for deals you simply won’t qualify for. Remember that rejections further harm your credit score – so apply with care. Our Smart Search tool matches deals with an assessment of your credit profile reducing your chances of making unnecessary applications.
Products worth considering include Barclaycard Initial, with a rate of 27.9%, and the Halifax and Bank of Scotland Standard, both of which also offer the same rate. The rates are significantly higher than average, but applying for such a card can actually help improve your credit rating as it give you an opportunity to show that you can handle credit in a responsible manner. Click here for further tips on how to improve your credit score.
Click here to compare more than 300 UK credit cards
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