Balance transfer
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A balance transfer is the act of transferring debt from one credit card to another assuming the newer card has better terms and rates. The balance transfer offer consists of three elements: offer rate, offer duration, and transaction fee. There are usually three types of offer by rate and duration: purchase rate, teaser rate, and fixed life of loan ('life of balance') rate.
- Purchase rate offer: The transferred balance will be subject to same rate as the card's purchase (merchandise) rate. Occasionally the same terms will apply as to purchases that may be interest free until the payment date for the statement on which the transfer appears. More often such transferred balances move immediately to the full purchase rate.
- Teaser rate offer: A very low rate for a limited time. The 0% rate is the most common when a new credit card account is opened. The duration of teaser rates vary from (typically) 6 to 15 months, after which the remaining transferred balance is subject to purchase rate. Failure to ensure the account is current (payments made on time) may result in the withdrawal of the the offer rate.
- Fixed Life of Loan rate offer : A low rate that is fixed until the transferred balance is paid in full. This type of offer is usually guaranteed only as long as the account is current (see Teaser rate). Whilst this allows the borrower to save interest on their existing debts without the need to initiate further balance transfers once a teaser rate offer expires, the fixed offer rate is higher than the limited duration teaser rate offer. (Typically, it may be between one-half and two-thirds of a fixed rate, fixed term personal loan)
An order of payments for every credit card specifies which balance(s) will be paid first. In nearly all cases payments apply to lowest-rate balances first - highest-rate last. Any balance under a teaser rate or fixed rate will be paid off sooner than any purchases or cash advances (which usually have the highest APR). By avoiding making purchases or taking cash advances altogether, the borrower can ensure they maintain the full benefits of the original balance transfer.
Many balance transfers are subject to a transaction fee. This varies from (typically) 1-5% of transferred debt - sometimes with a maximum capped amount, but otherwise an uncapped percentage.
