Balance Transfer is a feature offered on a Credit Card where you can transfer the Balance of one Credit card to another at a lower Rate of Interest. To explain Balance Transfers further, I will need to delve a bit deeper into the concept of Interest Charging on Credit cards.
When you spend on your Credit card you get between 20 to 50 days of an interest Free Period after which you are expected to repay the entire amount. Alternatively, you can choose to pay back only 5% of the balance and pay interest of ~45% per year on the remaining balance. This is a frightful amount of interest you need to pay as compared to conventional products such as Personal Loans etc.
However with the increased competition in Credit Card issuers and their desire to get more customers to use their Cards they have introduced the concept of Balance Transfers which I will explain with the help of an example.
I have an ICICI Credit Card with a limit of Rs.1,00,000 and I have used it to pay Rs.75,000 for my Holiday in Spain. My payment is due on 25th May. I have also been issued a fresh new Yatra Barclaycard Platinum (which I got without doing much when I booked a ticket on Yatra) with a Credit Limit of Rs.150,000. I just call up the Barclaycard Customer Service helpline and ask them to do a Balance Transfer of Rs.75,000 to my ICICI Bank Credit Card. They issue me a cheque favoring the ICICI Bank Credit Card which I drop in the drop box to make my ICICI Bank Payment.
Bingo …. My Credit card debt has seamlessly moved from ICICI to Barclays where I can enjoy a larger Interest Free period. Most banks offer an Interest Free period of 90 days after doing a balance Transfer. So now till mid September I have a Credit Free period on by Barclaycard. However, I will need to pay 5% Minimum Amount every month.
The obvious question is … why do banks promote this product when they do not make any money on the same. This is because they want customers to activate their credit card and get into the habit of paying and hope that within 3 months they will start doing other transactions on the Card as well, now they have gotten into the habit of paying bills on the new card issued to them.
When you opt for Balance Transfers – please look out for the following.
1.There is a processing fee which is charged between 1% and 3% with Service Tax
2.If you do any other transactions on the new card you will pay interest on the same from Day 1. This means that you cannot use the Card with the balance Transfer for anything else
3.Some banks do not give a 0% Interest Balance Transfer, but rather go for a 0.99% or 1.49%, so please check before availing of the same
I do not recommend Balance Transfers (or any other form of Credit Card Debt) at all, however I must admit that they have helped me overcome a temporary liquidity crises. Whenever you need any amount and do not have the liquidity, but are capable of paying the same within three to six months, then do not go for a personal Loan, a Balance Transfer will be much better as you will not pay any interest except for a 1%processing fee.
Feel free to write to me for any further clarifications that you may require on balance Transfers as a product. My E-mail ID is Ask.Pranav@Gmail.com and I will revert to your query in 48 hours.
When you spend on your Credit card you get between 20 to 50 days of an interest Free Period after which you are expected to repay the entire amount. Alternatively, you can choose to pay back only 5% of the balance and pay interest of ~45% per year on the remaining balance. This is a frightful amount of interest you need to pay as compared to conventional products such as Personal Loans etc.
However with the increased competition in Credit Card issuers and their desire to get more customers to use their Cards they have introduced the concept of Balance Transfers which I will explain with the help of an example.
I have an ICICI Credit Card with a limit of Rs.1,00,000 and I have used it to pay Rs.75,000 for my Holiday in Spain. My payment is due on 25th May. I have also been issued a fresh new Yatra Barclaycard Platinum (which I got without doing much when I booked a ticket on Yatra) with a Credit Limit of Rs.150,000. I just call up the Barclaycard Customer Service helpline and ask them to do a Balance Transfer of Rs.75,000 to my ICICI Bank Credit Card. They issue me a cheque favoring the ICICI Bank Credit Card which I drop in the drop box to make my ICICI Bank Payment.
Bingo …. My Credit card debt has seamlessly moved from ICICI to Barclays where I can enjoy a larger Interest Free period. Most banks offer an Interest Free period of 90 days after doing a balance Transfer. So now till mid September I have a Credit Free period on by Barclaycard. However, I will need to pay 5% Minimum Amount every month.
The obvious question is … why do banks promote this product when they do not make any money on the same. This is because they want customers to activate their credit card and get into the habit of paying and hope that within 3 months they will start doing other transactions on the Card as well, now they have gotten into the habit of paying bills on the new card issued to them.
When you opt for Balance Transfers – please look out for the following.
1.There is a processing fee which is charged between 1% and 3% with Service Tax
2.If you do any other transactions on the new card you will pay interest on the same from Day 1. This means that you cannot use the Card with the balance Transfer for anything else
3.Some banks do not give a 0% Interest Balance Transfer, but rather go for a 0.99% or 1.49%, so please check before availing of the same
I do not recommend Balance Transfers (or any other form of Credit Card Debt) at all, however I must admit that they have helped me overcome a temporary liquidity crises. Whenever you need any amount and do not have the liquidity, but are capable of paying the same within three to six months, then do not go for a personal Loan, a Balance Transfer will be much better as you will not pay any interest except for a 1%processing fee.
Feel free to write to me for any further clarifications that you may require on balance Transfers as a product. My E-mail ID is Ask.Pranav@Gmail.com and I will revert to your query in 48 hours.
1 comment:
yeah it will definately favouring banks
It will be very good if the database allow us to see the updated records for the low score...,i was shocked to see my score as -1 when i applied for a personal loan,even though i didnt have any personal or any type of loans early........
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