Balance transfer cards have long been a staple solution for paying off debt, interest-free, over a fixed period of time. They let you transfer debts from existing credit cards or store cards onto a balance transfer card, which can then be paid off over time. But what happens if you need to pay off an overdraft or a loan? Or you need cash to make a purchase? This is where a money transfer card comes in.
Money transfer cards allow you to transfer money from a credit card directly to your bank account. This money can then be used for any purpose whatsoever, including paying off a high-interest loan or overdraft. With the 0% interest period on some money transfer cards lasting for up to 24 months, this can be a financially savvy way of borrowing without paying interest. However, as with all forms of credit, there are certain things to understand and consider before you take the plunge.
Yes, but you will usually need a good to excellent credit rating.* Before applying for such a card then, it makes sense to check your own credit history with one of the three credit reference agencies (Callcredit, Equifax or Experian) to ensure that it is as good as it can be and that all the information on it is correct.
If you are unsure about your chances of success, you can look for a card that offers an eligibility checker, which tells you whether you’re likely to be accepted without leaving a mark on your credit history.
*Due to coronavirus financial worries, some lenders have tightened their acceptance criteria. It’s certainly worth doing an eligibility checker before applying.
Yes. Just like their balance transfer cousins, money transfers almost always incur a fee, and it’s usually slightly more than transferring a balance – around 4 to 5%. This fee will be added to the debt once the money has been transferred to your bank account. As this fee is the only charge for a money transfer (so long as you pay back the debt in full within the interest-free duration), you should choose your money transfer card carefully. Some money transfer cards offer a shorter duration for a smaller fee – so, if you’re confident that you can repay the debt within a shorter period of time, and you find a card with a low fee (say, 2%), then you would be better served by that than a 30-month card with a 4% fee.
No. The interest-free period offered on dedicated money transfer cards has strict timelines for any transfers – typically between 60 and 90 days from the date your account is opened. If you wish to take advantage of any offer, you will need to apply within this stated time.
This will depend on the credit limit you are offered by your chosen credit card. Typically, money transfer issuers will allow you to transfer between 90 and 95% of your credit limit, including any fee payable.
No. Taking out cash from an ATM with your credit card is considered a ‘cash withdrawal’ or ‘cash advance’. There is a fee for taking out cash (typically around 3% of the amount withdrawn), and more often than not a higher APR rate than the standard rate of your card (sometimes this can be up to 10% higher). Lastly, the interest on any cash withdrawals is interest-bearing from the moment you withdraw the cash. With all this in mind, it is never advisable to take out cash with your credit card. A money transfer is a much more sensible alternative.
A money transfer is very similar to a loan and indeed can prove to be a cheaper form of borrowing than a loan. However, there are a few important differences:
Interest on a loan is added from the outset, but a money transfer does not incur any interest during the introductory period (though there is a fee).
Repayments on a loan are regular in their timing and uniform in their amount, and there can be an early repayment penalty if you wish to pay it off before its natural end. By contrast, with a money transfer, you can pay back however much you like, when you like, so long as it exceeds the minimum repayment. This can be advantageous in that you can pay down the balance quicker as and when you have excess cash, but you must ensure that you have paid off the balance before the end of the introductory duration to avoid the subsequent high-interest rate.
Perhaps the most important difference is what happens if you are late with a repayment. With a loan, you will likely be charged a default fee - a fixed interest rate on what you owe until you catch up with your payments - and a late notice mark on your credit history. With a money transfer, however, if you exceed your credit limit or fail to make at least the minimum repayment every month, your interest-free duration will be withdrawn immediately and you will be left to pay the remaining debt at the standard rate of interest which your credit card carries. This is usually around 19% or higher, making it a very expensive form of borrowing compared to a standard loan. With all this in mind, it makes sense to set up a direct debit for your money transfer repayments and ensure that you do not exceed your given credit limit (taking into account any fee you have been charged for the money transfer).
No. Section 75 of the Consumer Credit Act 1974 covers purchases made on a credit card over £100 and under £30,000. To qualify for that protection, there has to be a direct link between your credit card and the supplier of the goods. For example, if you used your credit card to buy a vase costing £150, you would be covered. In the case of a money transfer card, there is no direct connection between what you buy with your cash and your credit card supplier. If you have a large purchase to make, or several smaller purchases over £100 and want the cover that Section 75 provides, you may be better served with a 0% purchase card.
If your money transfer introductory duration is nearing an end and you have a small balance still left to pay, rather than leave yourself subject to paying it off at the standard credit card APR, it may be worth looking for a 0% balance transfer card. It’s likely that you’ll still have to pay a fee for transferring, but, unless you’re expecting to repay your remaining balance within the next couple of months, this is still likely to work out cheaper than incurring your money transfer card’s standard interest rate.
The word ‘stoozing’ came into existence in 2004 from discussions on a financial advice forum, where a contributor called ‘Stooz’ described a practice of using 0% deals to make money.
The basics of stoozing are obtaining ‘free’ money on a 0% credit card deal, then using that money to invest in a high-interest account for the same period. In terms of money transfers, any transfer fee would need to be considered, and any interest rate on the savings (throughout the money transfer interest-free duration) would have to exceed this fee in order to make the practice profitable.
Stoozing could have been wildly profitable years ago when interest rates were at an impressive level – but today, with the Bank of England base rate at a historic low, it’s much less exciting.
The coronavirus outbreak is affecting everyone around the world and has put a financial strain on many. If you currently have a money transfer credit card and are struggling to meet your minimum payments, help is at hand.
Measures have been introduced by the Financial Conduct Authority (FCA) that allow you to request a freeze on credit card repayments. This is to give those experiencing a change in financial circumstances due to COVID-19 some breathing space. This won’t leave a bad mark on your credit history due to the exceptional circumstances.
You can apply for a 3-month payment holiday, which can be ‘topped up’ to a total of 6 months; you have until 31 March 2021 to request your payment holiday. Make sure you’ve agreed to it with your lender before you stop paying!
If you can afford to make repayments it’s best to do so, as you will still be charged interest during this holiday period. You might end up paying more in the long run so only request it if you really need it.