CREDIT card providers are deploying ever longer interest-free offers in the battle to win new custom. For many people who have built up debt over the summer holidays, these will look very appealing - but they may not be the bargain they seem. The AA, Bank of
The AA card also allows holders to transfer debt, such as store card balances or overdrafts from their current account, to zero interest for the same period.
And it is possible to get an even longer interest-free period.
Other providers, such as Barclaycard,
The interest that can be saved by transferring existing debt can be substantial. Bank of
Someone making pound(s)2,000 worth of new purchases on the day the 28/12 card was issued, instead of putting them on one charging 17.9 per cent, would save more than pound(s)300 over 12 months.
But deals like these come at a cost. Providers typically charge around 3 per cent of the amount transferred. AA's handling fee is 2.9 per cent of any card debt moved and 4 per cent of current account debt, with a pound(s)3 minimum for both. The 28/12 card charges a lower than average initial fee of 1.5 per cent, while
But only those with the best credit histories are likely to be accepted for a balance transfer card, and switches must normally be made within a period of 60 or 90 days to qualify.
If you fail to make the monthly minimum payment on time on any of these cards, as well as facing a late fee, the interest-free deal will be withdrawn and you will be charged the long-term rate until the debt is cleared. Full interest will also be applied indefinitely if you exceed your credit limit.
Once the 0 per cent period ends, the rate on any outstanding debt, and on new transfers and purchases, will rise dramatically.
The AA quotes a representative long-term annual rate of 18.9 per cent, while
Card providers are legally obliged to give a representative rate to only two-thirds of successful applicants. The other third - whose credit records are good but not perfect - can be charged more.
Although most people who apply for balance transfer deals have every intention of clearing the debt within the free period, the reality is that many don't - and end up paying hundreds, or even thousands, of pounds more interest than they budgeted for.
Meanwhile, four out of 10 owe more at the end of the interest- free deal than at the beginning, with some discovering they can't get another 0 per cent card and struggling to afford their repayments.
"We're just not going to do that any more; it doesn't help people manage their money effectively."
To avoid paying unnecessary interest, it you aren't going to clear your debt by the end of the 0 per cent period, switch to another interest-free deal - if you can get one - or consider moving to a card that offers a permanently low rate.
The Royal's Clear Rate Platinum Card charges 6.9 per cent representative on transfers and, if no transfer is made, on purchases. Once a transfer has been made, the purchase rate rises to 11.1 per cent representative. There is a pound(s)24 annual charge but no handling fee.
Other providers, including MBNA, Tesco, Sainsbury's, the Co-op and
CREDIT card providers are deploying ever longer interest-free offers in the battle to win new custom. For many people who have built up debt over the summer holidays, these will look very appealing - but they may not be the bargain they seem.
The AA, Bank of