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Lifetime Balance Transfers or Personal Loans?

With card providers' profits suffering at the hands of rate tarts and rising bad debts, consumers will find the long-term 0% balance tranfer deals free from fees becoming few and far between as providers look for alternative means to recoup their losses. Lisa Taylor, analyst from moneyfacts.co.uk comments on the competitiveness of the growing trend for providers to issue lifetime balance transfer deals.

"Lenders are struggling with the aftermath of offering the very attractive 0% balance tranfer deals which were used to increase their market share in an extremely competitive market. The nature of the card market has resulted in their actions having a negative impact on their own profits.

"This combined with the rising bad debts, as consumers struggle to repay their balances in the 'live for today culture' sees providers resorting to alternative methods to recoup their losses. Examples seen over the past few months include, adding fees to credit card balance transfer deals, uncapping balance transfer fees, withdrawing incentives and shortening introductory rates.

"However, this has lead to the birth of lifetime balance transfer deals, providing a competitive longer term deal, which offers a good deal for the consumer without being a 'loss maker' for the card industry. With rates to be found at 0.7% lower than the 'best buy' personal loan rate, it is worth consumers considering these credit card balance transfer deals as an alternative to refinancing using a personal loan.

“Consumers looking for a home for their credit card debt for the shorter term can still find some competitive 0% balance tranfer deals, offering a maximum 12 months’ 0% interest, but most now come attached with a balance transfer fee, commonly 2% with a maximum of £50.

“In the longer term consumers can find themselves chasing their tails to find these deals, after doing the rounds of the market. With many of the lifetime balance transfer deals being fee free they may provide a competitive, hassle free alternative.

“Although the lifetime balance transfer rates can be cheaper, it does require the consumer to be strict, making fixed repayments on a similar basis as a loan to make any benefit from the lower rates. At some stage consumers need to look at a structured repayment solution, so why not do it while the good rates are available?

“The added flexibility of repayments may also be an attractive feature to many consumers, making overpayments without penalty, reducing their balance to a rate comfortable for them and at the same time lowering their interest liability. And in times when money is tight, repayments can be reduced to lower monthly expenditure, allowing consumers to manage their monthly budget.

 “Obviously there are other considerations to take into account, for example the comparative costs of payment protection and also the size of the debt. However it does lead to the question whether the competitiveness of these balance transfer deals will see them being ‘sold out’ in their current state before too long.”