Since I keep an eye on top credit card offers, it was impossible for me to miss the fact that Barclaycard, among others, recently dropped the length of its top balance-transfer offers. And while these were recent changes, the move is in keeping with the general decline in interest-free offers from banks over the past couple of years, but does this indicate that balance transfer offers are set to fall further?
Gone are the heady days of intense competition which drove interest-free offers to the highs of 43 months in 2017. Banks have been steadily cutting their deals over the past year, but customers were still able snag balance-transfer periods of 36 months as recently as March 2018. However, with Barclaycard’s latest move, there are only a handful of cards currently on the market that land above the 30-month threshold.
We are currently in a time of economic uncertainty because of, yes you guessed it, Brexit. Added to that the potential for further rises in the Bank of England base rate, and there isn’t much appetite amongst banks to offer long interest-free deals. The higher the rates, the more costly these sort of deals become for lenders, and, as other banks start to reduce their offers, the competition lessons and even ‘generous’ issuers can drop their rates and remain competitive.
To make money, lenders rely on a certain number of borrowers either not being able to pay off their debt in time or simply forgetting about the end of their interest-free period. When that happens, they end up having to pay the card’s standard APR when their introductory period lapses. In reality, the shorter the interest-free term, the sooner lenders can make some money from the card. And the demand is still very much there for balance transfer cards, with figures from UK Finance showing that around 55% of outstanding debt is currently sat on standard interest-charging cards.
The market is certainly indicating it could. The economic landscape for 2019 is not set to improve, so it is likely that deals will follow the trend of recent years and continue to shorten. Lenders are also tightening their credit criteria and increasing their balance-transfer fees in order to sustain the cost of other features. According to Moneyfacts data, the average balance-transfer fee has risen from 2.04% a year ago to 2.25% presently. So alongside a reduction in the balance-transfer introductory term, offers overall could potentially worsen.
The good news is that the cards aren’t disappearing all together and there are still products on the market which offer a decent introductory period. If you are looking for a good balance-transfer offer, especially if you are planning to sort out your finances in the new year, then it could make sense to take one out sooner rather than later. While there is no move for interest-free balance transfers to disappear from the market entirely, the general trend indicates that interest-free periods will continue to shorten over 2019 and transfer-fees could potentially climb higher. Added to that the potential for household circumstances to change as a result of Brexit, and securing one of the long interest-free offers available now might look pretty smart in retrospect, if the “generosity” of balance-transfer offers continues to decline.