Business and Finance
Credit card deals drying up as fees rise
Deals are drying up, lenders have become stricter over whom they will lend to and charges are being pushed higher.
This time last year the average balance transfer fee for such deals was 2.74% of the sum owed. This has risen to 2.92%. MBNA charges as much as 5% on some of its deals with experts predicting that other providers could follow.
A 5% fee is equivalent to three and a half months' interest at a standard credit card interest rate of 17.3%.
Credit cards expert Peter Harrison says: 'Rate tarts who jump between 0% deals are having a tough time as credit is harder to come by and fees and charges have risen.
'Lenders are more picky about whom they will take as a customer. It means borrowers have to be savvy about which cards they choose.'
Consumers need to take a different view of 5% cards, says expert Andrew Hagger. 'These cards make financial sense if used correctly – that is, if you aim to pay off as much of the debt as possible during the interest-free term,' he says.
'If you have a clean credit record it may be possible to play the rate tart game for a while longer. But balance transfer fees are rising so borrowers should factor this in. Also consider the "revert toî interest rate. This is what you will end up paying if you can't switch again.'
Financial Mail's sister website, thisismoney.co.uk, regularly searches out the best 5% deals for customers. They include MBNA with 0% for 13 months and a current transfer fee of 2.9%.
Nationwide Building Society also offers 13 months at 0%, but with a 3% transfer fee, and Barclaycard Platinum offers 0% for 12 months with a 2.5% fee.
The Post Office, Sony Platinum MasterCard and Norwich & Peterborough also offer 0% deals for 12 months. It is important not to spend on these cards, as the interest rate on new purchases will be higher and borrowers cannot pay it off until they have cleared their balance transfer debt.
More card borrowers are switching to low lifetime balance cards as an alternative to jumping between 0% deals. The rates are lower than standard card rates, typically around 9%, and the rate is guaranteed for the life of the transferred balance.
These cards can be a good option for borrowers who know that they cannot clear their balance within 12 months or so. But only borrowers who have a spotless credit record are usually accepted.
The best deals are available from Egg Money and RBS NatWest Gold, both at 8.9%. First Direct has a card with a 5.9% balance transfer rate for five years. But these offers may not be around for long.
Scott Mitchell, 27, from Sandhurst, Berkshire, is a classic 'rate tart'. Due to his clean credit record he is still able to enjoy 0% credit cards and has just switched an £8,000 card balance from Virgin to a Santander Zero card.
Santander is the Spanish banking giant that owns Abbey, Alliance & Leicester and Bradford & Bingley.
The Santander Zero card charges 0% on transferred balances for 12 months with a 3% transfer fee, which means that Scott, a sales manager for a crane hire company, paid £24 initially.
Scott, who lives with his girlfriend Rowan Pledger, 32, a manager for the NHS, hopes to buy a property in London with her next year. He aims to clear the majority of his debt within the next 12 months.
'I'd be worried if the 0% market disappeared because it has been hugely beneficial to me,' he says.
'I enjoyed a blow-out holiday in Las Vegas a couple of years ago and the debt on my credit card crept up. I'm very keen to clear that as quickly as I can.
'The Zero card will make a difference because my repayments all go towards eroding the debt rather than expensive interest.'