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Credit card competition good news for consumers

Competition is returning to the credit card market with the launch of record breaking new deals from lenders.

Barclaycard trumped the rest of the field with the launch of a new 20 month 0% balance transfer period, the longest ever offered in the UK.

The announcement was made hours after MBNA and Virgin Money announced they were upping their balance transfer period to 18 months, the length previously offered by Barclaycard.

Both companies went straight to the top of credit card “best buy” charts as they charge relatively small balance transfer fees.

Lenders appear to be shrugging off the cautious mentality that saw them scale back lending after the financial crisis. The average balance transfer deal on the top five cards now stands at 17.8 months, up from 15.2 months in March last year.

Consumers are being warned to check the small print on such deals to make sure they fully understand the costs involved. The Barclaycard offering charges a 3.2% balance transfer fee, up from 2.9% on what was charged on the previous deal, while the MBNA and Virgin deal charges 2.88%.

Borrowers should also make sure that understand what their interest rate will revert to at the end of the interest free period.

Kevin Mountford, head of banking at Moneysupermarket.com, said: “In February, we saw providers launch a number of attractive credit card deals which well and truly showed their appetite to lend has returned. However, Barclaycard has taken this competition to a new level with the launch of the UK’s first 20-month balance transfer card. I wouldn’t be surprised to see other lenders react accordingly by launching similar deals, but with so many vying to go top of the best buy tables, we could see even longer deals emerge.”

He went on to warn that although lenders appeared to be gaining confidence, the best deals are still only available to those with good or excellent credit scores.

“This competition is welcome news for those consumers who are in a position to take advantage of this price war and consolidate any existing credit card balances on to cheaper deals. However, consumers need to be aware that most lenders are giving these deals to customers who have excellent or good credit histories. If you fall outside of this category then you may find your options are more limited. Before applying for a credit card, consumers need to check their credit profile and make sure there is no adverse information that would jeopardise their chances of being accepted,” he said.

Credit Cards – Pick the Right One For Your Circumstances

Credit cards can be a great personal finance tool, but to make the most of your plastic it’s imperative that you choose the right card for your circumstances.

So before applying for a new credit card you should make sure you’re clear exactly why you’re applying. If you are consolidating debt then a balance transfer card may be best for you, if you have a low credit score then a card designed for credit building could be what you need.

Below are some of the different credit cards currently available so you can see which one best fits your needs.

Balance Transfer

Balance Transfer credit cards allow you to move existing credit card debt over to a card provided by another lender and sometimes offer an interest free period as an incentive to switch providers.

This type of card could be beneficial to anyone with outstanding balances on several credit cards as the debt can be consolidated onto the one card, making it easier to keep track of your monthly repayments and how much you owe.

Another advantage is that you will pay less interest on your borrowings, at least for a certain period of time. This means that more of your monthly repayments will go to paying off the actual debt and not to the credit card companies I interest payments.

On the downside, many lenders now charge a  transfer fee, which can be anything up to five per cent of the balance that you are transferring, so this needs to be taken into account when considering whether a balance transfer card is the right option for you.

Low Standard Rate

Low standard rate cards are sometimes a good alternative to balance transfer credit cards, particularly if you feel that you will not be able to clear the debt by time the interest free period ends. If this is the case then you may find that once the introductory period is over and the standard interest rate kicks in then the balance transfer may actually have been counter-productive.

If you take out a low standard rate credit card then you will not be hit with a sudden increase in interest rates as the low interest rate will often remain constant, at least for the life of the balance.

Although you will still be paying interest on your debt, the annual percentage rate (APR) is usually well below that of a standard credit card and so this option should still save you money and, hopefully, ensure that the debt is paid off sooner.