If you have used a credit card before, you have probably seen the phrase “balance transfer”. At times, there are fees and interest attached to a balance transfer, and at times there is a waiver on it altogether.
People often ask if balance transfer fees are the same as balance transfer rates, and the answer is no. Fees and rates refer to different costs on the same transaction, so separating them early makes it easier to compare card offers without confusion.
This guide explains how balance transfer fees work, how they are applied, and how they differ from balance transfer rates, so the terms on a credit card make more sense before you apply.
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Balance Transfer Fees
The balance transfer fee is an amount charged by your credit card issuer when you transfer your balance from another card. The fee is a one-time charge, and in most cases, it is waived for a period of time. This waiver usually comes an an incentive to get you to sign up for the card.
For example, a transfer fee could be around 5% of the transferred balance. For every transfer that you make, you have to pay the 5%. However, during the waiver period, there will be no fees charged if you make a transfer with the card.
The Difference Between Balance Transfer Fees and Balance Transfer Rates
There’s a big difference between a balance transfer rate and a balance transfer fee. A balancer transfer rate is an APR interest rate that the balance transfer will be charged at. This means that while a balance transfer fee is a one-time charge, the balance transfer rate is charged monthly.
On most cards the balance transfer fee ranges from 3% to 5% of the amount moved, and some issuers waive it for a limited period as part of a promotion. Outside the promotional window, the same percentage applies to each transfer you make.
Meanwhile, a balance transfer rate may be offered at a 0% introductory rate on balance transfers for a promotional number of months. This means that within the first six months of opening the account when you transfer your balance there’s no interest charged.
Advantages of Balance Transfer Fees
When it comes to balance transfer fees, there are some advantages. With balance transfers, you have the ability to clear off the substantial debt quickly and at a lower interest rate.
The approach involves moving an existing balance that is accruing interest at a high rate to a new card that offers a promotional balance transfer rate at a lower rate, so more of each payment reduces principal instead of covering interest.
As a result the total interest paid over time can be lower, which in turn helps you reach a zero balance sooner while keeping payments consolidated on a single account.
Are Balance Transfer Fees Worth It?
First of all, you should know that you can negotiate the balance transfer fee with the issuer, especially if you’re a new customer.
Always weigh your options carefully before you sign up for the card, this is if you’re going to use the card to carry your balance.
A balance transfer and its associated fee is worth the struggle if you have high debt and prefer to have one consolidated payment each month. A balance transfer card that has low fees and rates can help you clear away major debt with ease.
Conclusion
There are a lot of terms that apply when credit cards are involved and balance transfer fees are among them.
