Balance Transfer Fee
What Is a Balance Transfer Fee?
The term balance transfer fee alludes to the amount of money a lender charges a borrower to transfer existing debt from another institution. This fee is commonly charged by credit card companies when cardholders move balances starting with one card then onto the next. The fee is typically a percentage of the total amount transferred by the debtor. Numerous lenders might charge no or low balance transfer fees as starting offers to new customers.
How Does a Balance Transfer Fee Work?
On the off chance that you've at any point utilized one, you are presumably very much aware of the relative multitude of fees and costs associated with possessing a credit card. As a cardholder, you're responsible for any charges you cause, the interest you accrue on any remaining balances, late payment fees, over-limit fees, check return fees, and balance transfer fees.
Balance transfer fees are incurred at whatever point a cardholder transfers a balance starting with one credit card then onto the next. To start a balance transfer transaction, you must contact the company of the card where the balance will be transferred. That company will ask for certain subtleties:
- Your name
- The amount to be transferred
- That card's account number
Individuals frequently use balance transfers to move high-interest debt to cards with lower interest rates. This is especially true when the credit card company makes a starting offer or no or low interest on balance transfers for new customers. On the other hand, you can utilize a balance transfer check, which accompanies your new card or statement for transfers or different purposes like purchases.
The fact that charges the [fee](/fee makes the institution or card company that gets the balance the one). Fees might be charged as a percentage of the transfer balance (normally 2% to 3%) or a fixed dollar amount (as much as $10 at times), whichever is greater. For example, in the event that your company charges a balance transfer fee of 2% or $5 (whichever is greater), you'll be charged $6 for a $300 balance transfer (2%).
Credit card companies ordinarily display the fee as a separate detail just below the balance transfer amount on credit card statements. This amount is generally added with different fees on the front or first page of the statement under the fees section.
You can find the balance transfer fee listed on the credit card company's website or on your cardholder agreement.
Credit card companies make offers to new and valued customers constantly. They might offer low-percentage early on or teaser interest rates, alluring new consumers to apply for cards or to existing customers with great narratives to transfer balances to them.
These teaser rates can be basically as low as 0% to 5% for a certain period of time. The rate commonly returns to a higher percentage following six to 18 months. The lender reveals the future rate normally as a broad and variable range, for example, 15.24% to 25.24%. The rate the customer really pays when the teaser rate lapses relies completely upon the borrower's credit rating and broader market conditions.
Shrewd consumers check out carefully at the terms before settling on a choice to take up an offer. The teaser rate and how long it endures are important, similar to the amount of the transfer fee. The annual fee, if any, likewise ought to be considered in along with the rate after the teaser closes. Not all credit card deals include balance transfer fees. Consumers with generally excellent credit scores are typically just approved for cards with no transfer fee.
On the plus side, a few cards offer more liberal cash back deals and miscellaneous other cardholder benefits.
Advantages and Disadvantages of a Balance Transfer
Consumers can receive many rewards with balance transfers. However, just like some other financial decision you make, there are numerous downsides associated with these transactions. We've listed the absolute most common ones below.
The greatest charm of a balance transfer is the opportunity to pay off a substantial debt all the more rapidly at a low or even zero interest rate. This is true the length of the transfer fee and some other charges, like an annual fee, don't cost more than you save over the term of the teaser rate. Just ensure you pay off the balance during the early on period if any.
Balance transfers can make your life extremely helpful. On the off chance that you have a ton of debt and a large enough credit limit on your card, you can utilize it to consolidate all your debt into one. This allows you to make a single payment consistently instead of managing various creditors and due dates.
By offering you the lower basic rate, the bank truly has just one thing as a main priority. That will be that you won't pay off the whole balance during the early on period, or in any event that you will assume more debt that will not be been paid off before the higher interest rate kicks in. So as great as it appears, your lender doesn't be guaranteed to have your best interests as a primary concern.
Keep as a top priority that you are feeling the squeeze to pay off the transferred balance inside a short amount of time if you have any desire to exploit zero or close to zero interest rates, even in the event that you have a full 18 months to do as such. This means you'll need to put more money toward paying your debt, which might slow down different parts of your life, for example, paying everyday costs or money you'd use to have a good time.
Your annual percentage rate (APR) is turned over to a lot higher one after the basic offer is over. At times, you might wind up with a lot higher rate than you expected, and that means you'll need to pay more in interest when that normal rate kicks in.
A consumer considering a balance transfer ought to calculate the total cost of repaying the current debt over time, with and without accepting a transfer offer. Factors incorporate the relative interest rates and fees, and the amount of time it will take to repay the total debt.
For instance, a credit card balance of $10,000 at a 20% interest rate brings about an annual interest expense of $2,000, or about $167 each month. Assume a credit card issuer offers you a promotional interest rate of 2% for a basic period of 12 months, with a balance transfer fee of 1%. Assuming the consumer takes that deal, the total cost of moving the whole $10,000 is $300 (the transfer fee of $100 plus interest payments of $200). The borrower would save $1,700 over the year.
The Bottom Line
Balance transfer fees can mean that cardholders with constant balances end up on a transfer merry go round, paying fees to move debt around without at any point really repaying it. The best way to make the most of a balance transfer offer is to focus on paying off the debt or as a lot of it as is conceivable before the initial offer lapses. The fee then becomes worth the work and money.
Balance Transfer Fee FAQs
How Do You Calculate a Balance Transfer Fee?
You can calculate the balance transfer fee on your credit card by duplicating the balance you wish to transfer by the percentage listed on your cardholder agreement. That means in the event that you transfer a balance of $1000 and your card company charges a fee of 3% of the balance, your balance transfer fee will be $30.
How Do You Avoid Balance Transfer Fees?
Deciding on a credit card that has no balance transfer fees is the best method for trying not to pay these extra charges, especially assuming you have a ton of debt that you need to move over to a low-interest card. You might need to consider signing up for a basic offer on another card that accompanies no fees. In any case, recall, the best method for staying away from them completely is to keep away from balance transfers by and large.
What Is the Best Credit Card for Balance Transfers?
The best credit cards for balance transfers are any whose interest rates are at or close 0%. Also, the longer they offer this low rate, the better. A few companies offer new cardholders 0% interest on balance transfers for up to 18 months. Any company that keeps transfer fees low, even after an initial period has passed, is additionally among those you ought to consider.
How Long Does a Credit Card Balance Transfer Take?
Balance transfers can take anyplace between a couple of business days to a long time to complete. Of course, everything relies upon your card companies — the one where the balance is being transferred to and the one from where it's being transferred.
What Are Balance Transfer Checks?
Credit card companies frequently send cardholders balance transfer checks in the mail when they first pursue a card or with their month to month statements. You can utilize these checks to transfer debt from different creditors, including other credit cards or loan balances, or you might utilize them to make purchases or take cash. Think of them as you would some other check, however ensure you read the fine print to check whether there are any extra fees associated with them.
How Does a Balance Transfer Affect Your Credit Score?
Balance transfers can assist you with paying off debt quicker and keep your debt load low. They may not initially influence your score since you basically have a similar amount of debt — you're just moving it starting with one creditor then onto the next. They will, be that as it may, influence you by how you treat payments once the balance is transferred. Assuming that you pay off the balance on the new card, you might further develop your credit score. In any case, on the off chance that you fail to pay off the balance or make late payments to the new card, your credit score will endure a shot.
What Does a Balance Transfer APR Mean?
Your credit card company might apply various rates to various types of transactions. A balance transfer APR is the annual percentage rate or interest rate charged to balance transfers. This rate is distinct from those attached to purchases, cash advances, and foreign transactions. Your cardholder agreement records the APRs for various transactions.
- Fees generally range somewhere in the range of 2% and 3% of the amount transferred or a fixed dollar amount (as high as $10), whichever is greater.
- Teaser or early on rates are commonly offered for a certain number of months before the customary rate kicks in.
- Balance transfers allow borrowers to set aside more cash however generally expect them to pay off the balance over a short period of time to stay away from a higher interest rate.
- A balance transfer fee is a charge forced by a lender to transfer existing debt over from another institution.
- Balance transfers are commonly offered with credit card companies.