Balance Transfer Fee

What Is a Balance Transfer Fee?

The term balance transfer fee refers to the amount of money a lender charges a borrower to transfer existing debt from another institution. This fee is commonly charged by credit card companies when cardholders move balances from one card to another. The fee is usually a percentage of the total amount transferred by the debtor. Many lenders may charge no or low balance transfer fees as introductory offers in order to new customers.

How Does a Balance Transfer Fee Work?

If you've ever used one, you are probably well aware of all the fees and costs associated with owning a credit card. As a cardholder, you're responsible for any charges you incur, the interest you accrue on any outstanding balances, late payment fees, over-limit fees, check return fees, and balance transfer fees.

Balance transfer fees are incurred whenever a cardholder transfers a balance from one credit card to another. In order to initiate a balance transfer transaction, you must contact the company of the card where the balance will be transferred. That company will ask for some details:

People often use balance transfers in order to move high-interest debt to cards with lower interest rates. This is especially true when the credit card company makes an introductory offer or no or low interest on balance transfers for new customers. Alternatively, you can use a balance transfer check, which comes with your new card or statement for transfers or other uses like purchases.

The institution or card company that receives the balance is the one that charges the fee. Fees may be charged as a percentage of the transfer balance (usually 2% to 3%) or a fixed dollar amount (as much as $10 in some cases), whichever is greater. For instance, if your company charges a balance transfer fee of 2% or $5 (whichever is greater), you'll be charged $6 for a $300 balance transfer (2%).

Credit card companies normally display the fee as a separate line item just below the balance transfer amount on credit card statements. This amount is generally added with other fees on the front or first page of the statement under the fees section.

You can find the balance transfer fee listed on the credit card company's website or on your cardholder agreement.

Special Considerations

Credit card companies make offers to new and valued customers all the time. They may offer low-percentage introductory or teaser interest rates, enticing new consumers to apply for cards or to existing customers with good histories to transfer balances to them.

These teaser rates can be as low as 0% to 5% for a certain period of time. The rate typically reverts to a higher percentage after six to 18 months. The lender discloses the future rate usually as a broad and variable range, such as 15.24% to 25.24%. The rate the customer actually pays when the teaser rate expires depends entirely on the borrower's credit rating and broader market conditions.

Wise consumers look carefully at the terms before making a decision to take up an offer. The teaser rate and how long it lasts are important, as is the amount of the transfer fee. The annual fee, if any, also should be factored in along with the rate after the teaser ends. Not all credit card deals involve balance transfer fees. Consumers with very good credit scores are usually only approved for cards with no transfer fee.

On the plus side, some cards offer more generous cash back deals and miscellaneous other cardholder benefits.

Advantages and Disadvantages of a Balance Transfer

Consumers can reap many benefits with balance transfers. But just like any other financial decision you make, there are many drawbacks associated with these transactions. We've listed some of the most common ones below.

Advantages

The biggest allure of a balance transfer is the opportunity to pay off a substantial debt more quickly at a low or even zero interest rate. This is true as long as the transfer fee and any other charges, such as an annual fee, don't cost more than you save over the term of the teaser rate. Just make sure you pay off the balance during the introductory period if any.

Saving money on interest charges allows you to put more money into your own pocket for other purposes, such as saving for retirement, vacation, renovations, or an emergency fund.

Balance transfers can make your life very convenient. If you have a lot of debt and a large enough credit limit on your card, you can use it to consolidate all your debt into one. This allows you to make a single payment every month rather than having to deal with different creditors and due dates.

Disadvantages

By offering you the lower introductory rate, the bank really has just one thing in mind. That is that you won't pay off the entire balance during the introductory period, or at the very least that you will take on more debt that won't be been paid off before the higher interest rate kicks in. So as good as it seems, your lender doesn't necessarily have your best interests in mind.

Keep in mind that you are under pressure to pay off the transferred balance within a short amount of time if you want to take advantage of zero or near-zero interest rates, even if you have a full 18 months to do so. This means you'll have to put more money toward paying your debt, which may interfere with other parts of your life, such as paying living expenses or money you'd use to have fun.

Your annual percentage rate (APR) is rolled over to a much higher one after the introductory offer is over. In some cases, you may end up with a much higher rate than you expected, which means you'll have to pay more in interest when that regular rate kicks in.

Example of a Balance Transfer Fee

A consumer considering a balance transfer should calculate the total cost of repaying the current debt over time, with and without accepting a transfer offer. Factors include the relative interest rates and fees, and the amount of time it will take to repay the total debt.

For example, a credit card balance of $10,000 at a 20% interest rate results in an annual interest expense of $2,000, or about $167 per month. Suppose a credit card issuer offers you a promotional interest rate of 2% for an introductory period of 12 months, with a balance transfer fee of 1%. If the consumer takes that deal, the total cost of moving the entire $10,000 is $300 (the transfer fee of $100 plus interest payments of $200). The borrower would save $1,700 over the year.

The Bottom Line

Balance transfer fees can mean that cardholders with chronic balances end up on a transfer carousel, paying fees to move debt around without ever actually repaying it. The only way to take full advantage of a balance transfer offer is to commit to paying off the debt or as much of it as is possible before the introductory offer expires. The fee then becomes worth the effort and money.

Balance Transfer Fee FAQs

How Do You Calculate a Balance Transfer Fee?

You can calculate the balance transfer fee on your credit card by multiplying the balance you wish to transfer by the percentage listed on your cardholder agreement. That means if you transfer a balance of $1000 and your card company charges a fee of 3% of the balance, your balance transfer fee will be $30.

How Do You Avoid Balance Transfer Fees?

Opting for a credit card that doesn't have any balance transfer fees is the best way to avoid paying these additional charges, especially if you have a lot of debt that you want to move over to a low-interest card. You may want to consider signing up for an introductory offer on a new card that comes with no fees. But remember, the best way to avoid them completely is to avoid balance transfers altogether.

What Is the Best Credit Card for Balance Transfers?

The best credit cards for balance transfers are any whose interest rates are at or near 0%. And the longer they offer this low rate, the better. Some companies offer new cardholders 0% interest on balance transfers for as long as 18 months. Any company that keeps transfer fees low, even after an introductory period has passed, is also among those you should consider.

How Long Does a Credit Card Balance Transfer Take?

Balance transfers can take anywhere between a few business days to a couple of weeks to complete. Of course, it all depends on your card companies — the one where the balance is being transferred to and the one from where it's being transferred.

What Are Balance Transfer Checks?

Credit card companies often send cardholders balance transfer checks in the mail when they first sign up for a card or with their monthly statements. You can use these checks to transfer debt from other creditors, including other credit cards or loan balances, or you may use them to make purchases or take cash. Write them as you would any other check, but make sure you read the fine print to see if there are any additional fees associated with them.

How Does a Balance Transfer Affect Your Credit Score?

Balance transfers can help you pay off debt faster and keep your debt load low. They may not initially affect your score because you essentially have the same amount of debt — you're just moving it from one creditor to another. They will, however, affect you by how you treat payments once the balance is transferred. If you pay off the balance on the new card, you may improve your credit score. But if you fail to pay off the balance or make late payments to the new card, your credit score will take a hit.

What Does a Balance Transfer APR Mean?

Your credit card company may apply different rates to different types of transactions. A balance transfer APR is the annual percentage rate or interest rate charged to balance transfers. This rate is distinct from those tacked on to purchases, cash advances, and foreign transactions. Your cardholder agreement lists the APRs for different transactions.