0% credit card balance transfers – is 40 months as far as lenders will go?

  • Longest 0% balance transfer term in 2006 was 12 months
  • Longest 0% term up from 26 months to 40 months in last 3 years
  • Lenders margins being squeezed with £25.2 billion of card balances currently interest free
  • Interest free balance transfers are saving consumers a combined £13 million per day

Andrew Hagger of Moneycomms takes a look at the latest trends in the credit card market.

There’s still plenty of activity in the 0% balance transfer sector of the credit card market with a new 40 month card (2.55% BT fee) launched by MBNA today pipping rivals Virgin Money and Tesco Bank to number one in the best buys – but it seems that 40 months may be a line beyond which lenders are reluctant to cross.

The first ever 40 month balance transfer deal was launched by Virgin Money last August but some eight and a half months later nobody has offered a longer deal instead best buy positions have been won and lost via the manipulation of the associated balance transfer fees.

When Virgin Money became the first lender to hit the 40 month mark it was charging a 2.99% BT fee (£179.40 on a £6000 switch) whereas today competition has seen MBNA offering a 2.55% fee (£153 on a £6,000 switch) to enable it to take top spot.

The appetite for 0% balance transfers shows no signs of abating with BBA figures for the first quarter of 2016 showing that 1.69 million balance transfers took place totalling £3.89 billion.

Competition in the market has seen the longest 0% term spiral from just 12 months in April 2006 with the most rapid period of increase in the last 3 years with the best buy deals rising from 26 to 40 months in that time.

There is currently £60.54 billion outstanding on credit cards with a massive 41.7% of this i.e. £25.2 billion interest free.

Collectively this £25.2 billion if charged at an average interest rate of 18.9% APR would cost borrowers £13 million pounds per day or an eye watering £4.76 billion per year.

The numbers are staggering and the concern is that nobody really knows how much of this £25.2 billion interest free balance is being managed by people being smart with their finances compared with those struggling to make ends meet and using it as a means to keep their heads above water.

You have to question why lenders continue to offer long term interest free credit but they no doubt factor in that a certain percentage of borrowers will miss a payment or exceed their credit limit – thus falling off the 0% wagon and straight on to a rate of 18.9% APR or more.

The chart below shows how 0% terms have risen over the last decade.

Bal transfers








Research by Moneycomms 27.04.2016


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