Balance Transfer Fees - Illegal?

SnowTiger

Idiophreak wrote: »

Exactly..I'd expect for them to have to display "equivalent APR" or something similar.

Okay, fair enough.

I had an offer through a while back: 24 months at 0% APR with a 1.9% transfer see.

That seemed pretty clear to me, but obviously not to you.

So, how would you like to see that represented as APR? 0.85% APR?

Idiophreak

SnowTiger wrote: »

Okay, fair enough.

I had an offer through a while back: 24 months at 0% APR with a 1.9% transfer see.

That seemed pretty clear to me, but obviously not to you.

So, how would you like to see that represented as APR? 0.85% APR?

Yeah, something like that...wouldn't work out at .85% exactly...not sure what it would end up at - but that's kind of the point, I suppose.

If you have 24 months on a 1.9% fee, or 22 months on a 2.1% fee, or 18 months on a 1.5% fee, or 36 months with a 2.5% fee, which one is giving you the best interest rate? Personally, I'm not so sure without getting a spreadsheet out...which kind of infers that the way they're selling these things isn't enabling consumers to quickly make informed decisions.

FWIW, it *is* perfectly clear to me...but then it was always perfectly clear to me that if you go overdrawn they'll hit you with a penalty for doing so...it was always perfectly clear to me that if you borrow from a PDL you'll be hit with astronomical interest rates and it was always perfectly clear to me that if you ticked the box that said "I'd like PPI" and your monthly payments were subsequently higher than you'd expected - you probably had PPI.

I don't have much of a problem with this, personally - besides my slight annoyance at being sent offers claiming to be 0% which are anything but 0% - and as such are of little interest to me...but I really don't see why the nanny state isn't stepping in on this, when it seems just as maliciously targeted to deceive the financially inept as anything else I've seen punished.

SnowTiger

Idiophreak wrote: »

FWIW, it *is* perfectly clear to me...

Me too.

So it's not misleading and probably isn't illegal.

chattychappy

SnowTiger wrote: »

I had an offer through a while back: 24 months at 0% APR with a 1.9% transfer see.

That seemed pretty clear to me, but obviously not to you.

So, how would you like to see that represented as APR? 0.85% APR?

Well... it's not APR 0.85%. It's actually quite complicated to work out because of the way the balance declines.

Idiophreak wrote: »

If you have 24 months on a 1.9% fee, or 22 months on a 2.1% fee, or 18 months on a 1.5% fee, or 36 months with a 2.5% fee, which one is giving you the best interest rate? Personally, I'm not so sure without getting a spreadsheet out...which kind of infers that the way they're selling these things isn't enabling consumers to quickly make informed decisions.

....but I really don't see why the nanny state isn't stepping in on this, when it seems just as maliciously targeted to deceive the financially inept as anything else I've seen punished.

Exactly. I'm anti-nanny state. But given we have a system of APRs that was devised so people can make informed choices, it's reasonable to expect this to apply throughout the "customer/lender relationship".

opinions4u

I think balance transfers should come with a clear APR that takes the fee into account.

fozmcfc

I don't think it is hidden or not clear, that a fee applies, but I was thinking this the other day, that the fees seems to be creeping up with some providers.

If they go too high and it might be better to get a loan out, then a 0% transfer. Or a balance lifetime APR if you can get one at less than 5%.

Ultimately though, for someone with a balance, that they aren't going to clear in 2 or 3 months, a 5% fee for upto 2 years interest free is still a great offer.

Idiophreak

fozmcfc wrote: »

If they go too high and it might be better to get a loan out, then a 0% transfer. Or a balance lifetime APR if you can get one at less than 5%.

As above, though, it would be hard to tell if that was the case - because they don't provide a comparable APR for people to see that. I've had "offers" through for 8 months at 5% - that's getting into loan rate territory.

fozmcfc wrote: »

Ultimately though, for someone with a balance, that they aren't going to clear in 2 or 3 months, a 5% fee for upto 2 years interest free is still a great offer.

I agree that it's probably still a good deal...but I'm unsure how it can be described as "interest free"...they're charging interest! They're just calling it something else...

I wonder where this will end.
"Buy this sofa on INTEREST FREE CREDIT*! *29.9% handling fee applies".

"0% INTEREST FREE CREDIT* now available on all new cars! * handling fee of 24.9% applies.".

It's just silly.

Hominu

Idiophreak wrote: »

"Buy this sofa on INTEREST FREE CREDIT*! *29.9% handling fee applies".

"0% INTEREST FREE CREDIT* now available on all new cars! * handling fee of 24.9% applies.".

I don't see the problem with that as when it comes to sign the agreement, it'll be clearly pointed out to the customer:

Final price without credit: £11,000
Final price with 24 months interest free credit: £13,739

For some people they may agree that the later is acceptable to them and take it as it would be equivalent to 22.334% APR, but with the guarantee that the interest will never increase over the period so the payments are fixed.

sfax

You can work out an APR equivalent quickly and easily by comparing it with a loan of identical length that pays the whole balance over the period. This won't be what you do in practice (you'd probably pay about the minimum each month and then port the balance to a new deal) but it provides a common denominator so that you can compare an interest free 18 months with 3% handling card with a 24 months with 4% handling fee.

E.g. £1,000 at 0% interest for 18 months with a 3% fee is 3.75% APR
and £1,000 at 0% interest for 24 months with a 4% fee is 3.795% APR

If you have the time you can put together a spreadsheet and make a more realistic comparison. E.g. borrow over 4 years with 2 back to back 0% BT deals with 3% handling:

£1,000, initial fee £30, pay £21.78/month, balance after 24 months £507.28, next fee £15.22 (3% again), pay £21.78/month, balance after a further 24 months is £0. Total "interest" is £30 + £15.22 = £45.22. Equivalent APR on a 48 month loan (£21.77 monthly payments) is 2.175%. This is more realistic IMO.

APR needs a fixed repayment period to make sense. If you are looking to just shift the debt around and never repay it, it's perhaps not the best measure.

pqrdef

Idiophreak wrote: »

As above, though, it would be hard to tell if that was the case - because they don't provide a comparable APR for people to see that. I've had "offers" through for 8 months at 5% - that's getting into loan rate territory.

Hmm. A BT with "0% interest" for 12 months and 3% fee would work out at 3% APR if you didn't have to make any payments until the end. If you make the minimum payments, the APR works out higher. But if you pay off 1/12 of the balance every month, aiming to clear it, then the APR is more like 6%.

As you say, this is loan rate territory, and a low-rate credit card might work out cheaper than the 0% card.