Deals for Interest-free Balance Transfer Credit Cards Are Disappearing

Is it the end for zero percent balance transfer deals?
December 14, 2020 by Stuart Smale

In 2019, there were numerous offers available that allowed consumers to take a credit card and transfer the credit to another card to pay off the balance. Then they would be given an interest-free period in which they could pay back the balance. This was an excellent way for consumers to avoid expensive interest rates on their credit cards and helps consumers manage their debt more easily.

However, since the beginning of 2020, the number of deals where this is available has fallen by nearly a third. According to research, there were 76 deals in the UK where you could get interest-free balance transfers. In July 2020, the number of deals is thought to be around 50, with more deals set to go as lenders start to tighten lending.

Not an Isolated Case

This behaviour by lenders is not unique. At the beginning of the 2008 recession, similar behaviours by credit card companies were seen. In December 2007, there were 118 available deals, but by June 2009 this had fallen to 97.

As the UK officially entered a recession in August, lenders have been looking at an uncertain market. There are still concerns about what a second wave of Covid-19 might do to the UK market. There are also concerns that foot traffic in shopping areas are much lower than they were in the same period last year. Some places have seen a 40% drop in traffic. If customers aren’t returning to the high streets, then spending will be lower and the recession could continue for longer than the UK government had hoped.

Transfer Fees Are Rising

Most interest-free balance transfer offers will have a clause where a charge is made against any transfer fee. This is normally a percentage of the money transfer. This can increase the amount of debt that is incurred, but when you can have a 24-month interest-free period, the costs of the transfer are usually much lower than the cost of the interest over the period.

The average fee for the transfer of debt to a new card is also increasing. In January, the average fee was 2.27% of the balance. In July 2020, the fee had increased by 2.32%. It is not known whether this is because the best deals have been pulled from the market, leaving the more expensive ones, or whether credit card firms have started to increase fees.

However, the increase does mean that for the average £2,000 transfer, a customer will pay an extra £1. At the same time, the length of the interest-free period is also shortening. Some credit cards will offer deals that last less than two years.

Deals Are Still Available

Despite the gloomy outlook for consumers, there are some signs of hope if you’re looking for a new credit card. There are deals available which can help you manage your debt and spread the cost of borrowing across a longer period of time.

Lenders Are Cutting Credit in Many Different Areas

Lenders are making cuts to loans, mortgages and other borrowing as the recession caused by the current climate affects the economic output of the UK.

A classic example of this is the low-deposit mortgage deals that are on offer. In recent months, the number of available deals has fallen significantly. In March, those who were able to offer 10% of the property’s value were able to choose from over 700 deals. Within six months, the number of low-deposit deals has fallen to just 60 offers.

Many lenders have stated that they will not consider applications for lending from people who are currently on furlough or do not have a return to work date.

And lenders are being more strict about who they consider as a safe person to lend to. There are considerable fears within the borrowing industry about the rise in unemployment and this could mean lots of borrowers will default.

The End of the Payment Holiday

Another problem with the current credit card situation is the end of the payment holidays for credit card repayments without penalty. There are many borrowers who are also going to be looking for balance transfer interest-free deals in the coming months. Those with an average debt on credit cards of £3,000 can save over £200 if they move from a high-interest credit card to a better, more affordable product.

However, deals will have to be taken soon. Many in the industry believe that as winter arrives, cases of Covid-19 are set to rise, but financial support from the government is ending, so UK consumers are going to struggle. This will lead to less affordable deals being available.

And if people are made redundant from their jobs, which has already been announced at several large firms like Costa Coffee and Pizza Express, then there are going to be very tough times ahead.

What Does This Mean for Your Borrowing?

Now, more than ever, it’s important to get a handle of your financial health. This includes ensuring that you’re budgeting for your current income and being able to pay back any lending that you may take out.

Before applying for any credit card, it will be best if you check your credit score and ensure that you’re not going to be rejected for a card before you apply. You can always speak to a credit card broker to help you find the best deals for you.

A broker is a great option because they’re legally obliged to find you the best deal for your circumstances. Other workers within the industry are not. They can provide you with deals that their company offers, but they might make you pay more in interest or other fees.

Brokers can also source deals from numerous different credit card companies and are paid a commission only when you have taken a deal with them.

Conclusion

To get the best credit card deals you’re going to have to check your finances and move quickly. Lenders are being more strict with who they’re lending to, the cost of borrowing is increasing and low-income borrowers are going to find it tougher to get a new card very soon. Speak to a credit card broker today if you need a new credit card to be sure that you get a better deal.

Is the managing director of Cobra Payday Loans and Ready Money Capital Limited. He is responsible for all the day to day functions and performance of both companies and regularly contributes information on the short term finance sector. Stuart is an approved person with the Financial Conduct Authority, holding SMF3 (Executive Director) status.

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