Balance Transfer Loans: What You Need to Know
A 0% balance transfer offers an excellent opportunity to enjoy a couple of months without credit card interest. Balance transfers are usually utilized by consumers who would like to move their loan to a credit card with better benefits, fewer penalties, and a lower interest rate.
Although it may sound like a good idea, be sure to consider the advantages and drawbacks of doing a balance transfer before you delve into the opportunity, it might not be as high as you presume.
In this post, we've covered some essential things that you need to know about balance transfer loans. So, take a read!
Things to Lookout For
There's no doubt that a balance transfer loan can help you save some money. For instance, a credit cardholder has a 5,000 dollars balance on a card with 20 percent APR (applied percentage rate), having that balance can cost at least 1,000 dollars a year.
Once you secured a 0% balance transfer on a new card and moved the balance, you will have one year to repay it without interest. Additionally, you'll get a fee to move the balance. Even so, surprises and details of these balance transfers are plentiful.
Say, after the balance transfer, the credit card holder still needs to pay the minimum monthly payment prior to the due date to keep the 0% interest rate. Also, make sure to look out for the interest rate.
The new credit card has a standard interest rate that is greater than the balance's interest rate on the current credit card. Likewise, any default under the agreement between the credit card company and the cardholder can make the interest rate skyrocket to as high as 30 percent.
Moreover, the zero percent interest rate is generally valid for at least 18 months. Make sure to check if the transferred loan can be repaid within that period and, if not, what rate incurs afterward.
Where to Look
When checking a credit card comparison site, know that these websites usually receive referral charges from the card companies when you apply for a credit card via the site. What's more, many credit card companies have modified the info that sites post about their credit cards, particularly in a way that changes the picture of the costs of a card.
Do check the guide offered by the Consumer Financial Protection Bureau on how to look for reliable comparison sites and issuer.
How Does it Work
How can you do a balance transfer? How does it work? Once you get approved for a new credit card with a zero-percent interest rate balance-transfer offer, discover and learn whether the rate relies on a credit check or is automatic.
Then, determine which balances to move to the card. Take note that credit cards with high rates must come first. Also, the balance does not have to be in the name of the cardholder to be eligible for a transfer.
The next step is to compute the transfer fee, which usually is at least 5 percent. Find out any capped fee that can make moving huge balances worthwhile. Also, be sure to validate the credit card limit on your new card.
The balance transfer must not go beyond the available or outstanding credit line, and fees that can add up toward that credit limit. Further, the next question to tackle is where to move the funds.
Should they be transferred to the high-interest card to repay any balance? In many cases, the credit card holder can transfer the balance into their bank account. However, it can be tricky. Ensure that the card thoroughly affirms that the money entrusted to a bank account won't be deemed a cash advance, which could pose a high-interest rate on the transaction.
Keep An Eye Out on The Grace Period
Those who make the most out of these offers are usually on the hook for surprising interest fees. The problem with these offers is that moving a balance implies carrying a monthly balance. And carrying it by not repaying the loan every month can mean losing the grace period of the credit card and paying unexpected interest charges.
Keep in mind that the grace period is between the due date of the bill and the end of the credit card billing cycle. Within the grace period, the cardholder does not have to pay interest on purchases. However, the period only takes effect if the holder has no balance on the card.
After a transfer, if the grace period's terms for purchases are unclear, then you need to search for one with more explicit terms. If you take the balance transfer offer, be sure not to use the card for any acquisitions until you've repaid the balance transfer.
A balance transfer should be used as a means to escape or get out of debt faster and pay low interest without hurting your credit rating. Thus, it's essential to understand the terms, repayment plans, and more before taking out this offer.