egg balance transfer offer march 2012

marasan

Hi,
I'm an egg credit card customer and have been offered a balance transer offer for bout nine months. The rate is 3.9%, but there is also a balance transfer fee of 3.9%, on which I'll be charged interest at the "standard rate". I wonder, taking into account all the fees and the apr, what in fact the true cost of the debt would be over this period and whether it would be better to get a standard loan? Looking to transfer a debt of around £3000 - £5000. Any thoughts welcome.

lisyloo

What is your "standard rate" and what's your loan rate.

The maths for the annual rate is something like

(3.9% + 3.9% + 3.9% * standard rate) / 0.75

You need to compare this with the loan rate.

marasan

Thanks, standard rate is 16.9%. Will apply this to your formula. Classic example of looking at the small print as egg's headline figure is "3.9% balance transfer"

lisyloo

So approx 11.3% which includes the initial fee, then the interest, then the interest on the fee, the grossed up for 12 months and not 9.
So you now have to compare that with the loan rate you can get.

JimmyTheWig

Ok, lets say you borrow £4000 and repay over 12 months.

It depends on what order they allocate your payments. Lets assume it's interest then fees then balance transfer. (The rules for this have changed recently. Previously this wouldn't have been the case. Now I thik it has to be.)
That means that you'll be paying off the fee in the first month, so will only get one month of high interest on the fee. That makes the fee the equivalent of 3.94%.

Lets also assume that you don't make any further transfers or purchases on the card.
(And, for now to make the calculations simpler, I'm assuming that the balance reduces in a straight line. This won't be the case, but shouldn't be too far out. I'll add £1 at the end to compensate.)

So you'll pay the equivalent of £158 fee.
Your average balance for the first 9 months will be £2599, on which you'll pay £76 interest over the 9 months.
Your average balance for the remaining 3 months will be £520, on which you'll pay £22 interest.

In total, then, the loan will cost you £158+£76+£22+£1 = £257.
That's about 11.7% APR.