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When looking for a credit card you may well have considered 0% credit cards. After all, they allow you to borrow interest free for an extended period (up to 32 months in some cases): as long as you pay this off your balance before the introductory period ends, you won’t have paid any interest on what you’ve borrowed. But you can incur costs with these cards – and it seems that not many people are aware of this.

True cost

Recent research by Which? revealed that people don’t fully understand the true cost of balance transfers on 0% credit cards. Only one person in 25 correctly worked out how much a 0% balance transfer would cost them in a test conducted by the consumer group, while a further seven out of 10 people thought that the transfer incurred no cost at all.

Which? estimate that consumers pay around £334m in fees to transfer debts onto a new card every year, but few know the full extent of the costs involved. The consumer group now wants the Financial Conduct Authority (FCA) to take a closer look at balance transfer fees as part of its investigation into the credit card market, after supplying them with evidence from their study.

Balance transfer fees

The findings suggest that people concentrate more on the interest-free periods offered and not on the balance transfer fees included when they’re browsing the market, even though these can be substantial.

The fee to transfer debt across to a balance transfer card is typically 3%, with a minimum of £5. This means that if you wanted to transfer across a balance of £1,500, you would pay a fee of £45 to do so. Some cards charge lower balance transfer fees than this but these tend to come with a shorter 0% period.

In response to their findings, Which? has urged the FCA to look at whether the fees should be shown as a cash sum rather than a percentage. They hope that this would make the cost of making balance transfers easier for consumers to understand. As well as this, they have asked the regulator to consider banning firms from advertising these cards as 0% as due to the balance transfer fees, they’re not completely charge-free.

The main thing to remember when browsing 0% credit cards is to do your research beforehand. Compare cards directly by looking at their APRs, balance transfer fees and the length of their interest-free period. Just be aware when doing this that some credit cards advertise their interest-free periods as ‘up to’ a certain amount of months. What is not made clear is that when you’re accepted, you might not receive the full 0% period that you applied for, depending on your credit history.

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