Quick question - is interest charged on balance transfer fees?

finance-boy

Hello. I've noticed that a lot of credit cards offer 0% on balance transfers, but charge a fee for performing the transfer (usually about 3%)

My question is this: is the balance transfer fee added to the 0% balance, or is it charged at the normal rate (say about 17%)? If so, will the fee be paid-off before or after the 0% balance? And will the interest on the balance transfer fee also accrue interest, causing the fee to "snowball"?

Also, when is the fee charged? Before or after a balance transfer takes place? Would it be possible to create a positive balance on a new card (by sending a payment that isn't needed), which would then have the fee taken from it, to create a neutral (or only slightly positive) balance, so that you don't have to pay any interest at all for the length of the introductory period (provided no purchases are made on the card)? Would this be possible with an existing card that offers 0% on balance transfers for 6 months? If my balance on the existing card is slightly negative (I owe a few pounds on it), would I need to wait for the next statement to arrive before it's "safe" to transfer a balance? Would it otherwise "lump" the balance transfer amount together with the existing balance amount and take the payment to cover the combined amount, leaving me stuck with a few pounds of standard-rate balance (plus standard-rate interest)?

I hope I've explained this properly. Please feel free to ask if you need clarification.

Thanks.

methusala_2

It depends on the card company. Many use the first payment to pay off the fee and some do what you fear. Best to check at the time which way the card company operate.

yes if you want to do a BT then it is wise to wait untill you have a statement which show a balance of 00.00 in the account

CLAPTON

whether you pay interest depends upon the detail of the card ...if you do I doubt your plan would work ... but is it worth it anyway?

Obviously good to be money saving but if you BT £1000 at 3% BT fee and they charge 20% interest on it then you will pay a £30 fee plus 50 pence interest each month

finance-boy

Yes, that's what I was worrying about. But there must be some way around it - what do "stoozers" do to avoid that situation?

Here's some excerpts from the Alliance and Leicester credit card agreement:
++++++++++++++++++++++++++++
Promotional rates:
Promotional offer 1
For balance transfers, cheque transactions and money transfers we will charge interest at the rate of 0% p.a. (a year) in the first 12 months from the account opening date. After that we will charge the standard interest rate which applies to transactions of this type, as set out in paragraph 2b.

Interest charging information:
Card purchases, balance transfers, cheque transactions, money transfers and cash transactions: we will charge interest on all transactions, fees, other charges and interest, starting on the transaction date and ending on the date you pay the bill in full. We work out interest each day so the earlier you make payment, the less interest you will have to pay. If interest is payable, the minimum charge will be £1.

Allocation of payments:
We will use your payments to reduce balances at lower rates of interest before balances at higher rates of interest. For full details of how we deal with promotional offers which have the same rates, please see paragraph 2f of your terms and conditions.

Other charges:
Handling fees on transactions made under promotional offer 1
Balance transfers: 3% (min. £3)
Cheque transactions: 3% (min. £3)
Money transfers: 3% (min. £3)
++++++++++++++++++++++++++++
So it says that they charge interest on the balance transfer fee, that interest will be charged on the interest, and that any payments will go toward reducing the promotional (0%) balance before the standard-interest balance - i.e. that the interest would snowball.

But I worked it out in Excel (I love Excel), and it's not as bad as I thought. Assuming that 20% APR (it's probably less than 20%, but I can't figure that out for sure) is being charged every month on a fee of £30 (from a £1000 balance transfer), the total of the standard balance (not the 0% balance) after 1 year would be only £35.98, including the original £30 fee. I've included my working out below, if anybody's interested.



So I don't suppose it would be such a big deal after all. But still, if anybody knows a way to avoid paying interest on balance transfer fees, I'll be very happy to hear it. Can anybody say which cards just take the fee out of the first month's payment, like methusala mentioned? That would be great.

Thanks,
finance-boy

YorkshireBoy

finance-boy wrote: »

Here's some excerpts from the Alliance and Leicester credit card agreement:

Here's the excerpt relating to interest charged on BT fees on MBNA run cards (of which A&L is one)...

2d We will charge interest on...handling fees...at the interest rate which applies to the relevant transaction...

https://wwwn.applyonlinenow.com/UKCCapp/Ctl/link?eid=EF3C6FB7

Ergo, the fee for a 0% BT incurs interest at 0%.

finance-boy

Oh yeah, I missed that. That's great news. I've always been put-off balance transfers because of the fees and possibility of interest being charged on them. Think how much I could have saved over the years!

Thanks

IWantToBeFree_2

I have never incurred interest on balance transfer fees whilst I have been in the promotional period, this includes cards from Halifax, MBNA, Abbey, Barclays & Egg.

YorkshireBoy

IWantToBeFree wrote: »

I have never incurred interest on balance transfer fees whilst I have been in the promotional period, this includes cards from Halifax, MBNA, Abbey, Barclays & Egg.

You would if you had an RBSG (RBS, NatWest, Tesco, Mint) or LTSB card now.

IWantToBeFree_2

I have a Tesco card and was never charged interest on the BT fee.

YorkshireBoy

IWantToBeFree wrote: »

I have a Tesco card and was never charged interest on the BT fee.

I said you would be charged interest "now"...

The balance transfer fee will attract interest at the rate applied to purchases from the date charged until paid off.

http://www.tescofinance.com/personal/finance/finance/creditcards/bonuscc/index.jsp

Are you still in your purchases introductory period, or was your BT made a while ago and before the T&C's changed?