Virgin cuts 0% balance transfer period
The move comes just days after the government announced a ban on credit card providers using customers’ payments to clear balances attracting the least amount of interest before more expensive debt.
Experts warn the new rule, which will come into force later this year, could spell the end of 0% balance transfer cards.
Virgin Money has long topped 0% balance transfer best-buy tables with its 16-month interest-free offering.
However, its decision to reduce this introductory period by two months means Barclaycard’s Platinum credit card is the most competitive deal for anyone looking to transfer a balance from an existing credit card.
Peter Harrison, credit card expert at Moneysupermarket.com, says: "The Virgin credit card has been a market-leading product for balance transfers for many years, so this move shows how the industry is responding to the regulation which is being introduced.
“Ultimately it is consumers who will be losing out as lenders reduce their 0% offers in response. I would expect further changes in promotional offers over the coming weeks.”
The number of cards offering balance transfers has fallen by 10% since the credit crunch began in 2007. Currently, around 152 out of 219 cards offer balance transfers deals - 140 of them at 0%.
Louise Holmes, spokeswoman at Moneyfacts.co.uk, adds: “With many providers offering 0% balance transfer periods, cardholders had previously been spoilt for choice. There were many opportunities to transfer to a better rate and pay off the outstanding amount before the 0% period expired.
“The main reason for this decline lies with risk. Providers are wary of attracting debt from customers who could default at any time, and have the possibility of unemployment and economic hardship hanging over them.”
Barclaycard offers 0% interest for 15 months on balance transfers, subject to a 2.9% fee. You'll also receive 0% interest on purchases for three months. The typical APR outside the zero introductory period is 15.9%, although you will receive 56 days to pay off your balance before interest kicks in.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.