When choosing a credit card for your business, you might feel overwhelmed by the number of options each provider offers.
Some cards will offer a specific option which is helpful to streamline debt management: the balance transfer. But what exactly are these cards, and how do they differ from their counterparts?
In this guide, I will explain what balance transfer credit cards are, detailing their features, benefits and fees, to help you decide whether this is a useful feature for your business.
What is a Balance Transfer Credit Card?
A balance transfer credit card is a type of credit card that allows you to transfer an existing credit card balance to a new card, typically with a lower interest rate.
The primary purpose of this transfer is to save on interest costs, especially during promotional periods where extremely low or even 0% interest rates are offered.
These cards are useful if you need to consolidate multiple debts and manage a unique repayment plan.
They can be a strategic tool for managing high-interest credit card debt, but they require understanding, discipline, and careful planning.
How do Balance Transfer Credit Cards Work?
Initiating the Transfer – Once approved for a balance transfer card, you specify the accounts from which you’d like to transfer balances. The new credit card company then pays off the old balances and shifts that debt to the new card.
Promotional Interest Rates – One of the significant draws of balance transfer cards is their promotional interest rates. These rates are temporary and usually last from 6 to 21 months. During this period, you may enjoy a significantly lower interest rate, often even 0%.
Transfer Fees – Most balance transfer cards charge a one-time fee for the service. This fee is usually a percentage of the transferred balance and can range from 3% to 5%, although some cards may offer promotions with no transfer fees.
Post-Promotional Rates – After the promotional period expires, the interest rate on the card will increase to the standard rate, which could be higher than the average credit card rate. This is something you should keep in mind at all times.
Pros & Cons of Using a Balance Transfer Credit Card
Pros
- Lower Interest Rates – One of the main attractions is the promotional low or 0% interest rate, which can save you a lot on interest expenses, especially if your business has significant debt.
- Consolidation – If you have balances on multiple cards, transferring them to a single card can simplify your payments and make it easier to manage your finances.
- Potential for Faster Debt Payoff – Without interest accruing, more of your monthly payment goes towards the principal balance, allowing you to reduce your business debt faster.
- No or Low Balance Transfer Fees – While many cards charge a balance transfer fee (often 3% to 5% of the amount transferred), some cards waive this fee during promotional periods.
- Additional Perks – Some balance transfer cards come with additional benefits, like rewards programs, introductory bonuses, or purchase protections.
Cons
- Balance Transfer Fees – Many cards charge a fee for the transfer. Depending on the size of the balance and the fee, this can offset some of the savings from the lower interest rate.
- Temporary Benefit – The promotional interest rate is temporary. Once it expires, the rate will increase, sometimes by a lot.
- Potential for Higher Debt – If you’re not disciplined, you might use the newly cleared credit card(s) to rack up more debt, putting your business in a worse position.
- Potential Impact on Credit Score – Opening a new credit account can temporarily lower your business’ credit score due to a hard inquiry.
- High Post-Promotional Rates – The standard APR after the promotional period can be high. If you don’t manage to pay off the entire balance during the promotional period, you could end up facing hefty interest charges.
- Loss of Promotional Rate – Some cards have terms that allow them to revoke the promotional rate if you miss a payment or commit other infractions.
What Should You Be Aware of Before Transferring a Balance?
While Balance Transfer Credit Cards can be useful for managing debt, there are several important aspects to be aware of before making the move.
Transfer Fees – Most credit cards charge a balance transfer fee, usually ranging between 3% to 5% of the amount you’re moving. While you might be attracted to a lower interest rate, you have to calculate if the savings from that rate outweigh the initial fee you’ll pay.
Introductory Period Duration – Many cards offer a 0% interest rate on transferred balances for a limited period. Be aware about how long this period lasts. If you don’t pay off the balance within this time, you might find yourself subject to a much higher interest rate once the introductory period ends.
Post-Introductory Interest Rate – What happens when the introductory period is over? Make sure to understand the regular interest rate (or APR) that will apply to the remaining balance. If it’s high, any savings you made during the introductory period could quickly disappear.
Impact on Credit Score – Opening a new credit card can have a short-term negative impact on your credit score. This happens because credit inquiries (which occur when you apply for a new card) can slightly reduce your score. However, if managed well, a balance transfer can improve your credit utilisation ratio and help your score in the long run.
Terms and Conditions – Always read the fine print. Some cards have clauses that void the 0% interest offer if you miss a payment. Others might charge high fees for late payments.
Other Card Benefits – Balance transfer is not the only point to consider: study other benefits the new card offers. Rewards, cash back, or travel points might make certain cards more appealing than other.
Current Card Benefits – By transferring a balance and potentially closing your old card, you might be giving up benefits or rewards that you value. Closing older accounts can also impact your credit age, which is a factor in your credit score.
Repayment Plan -Have a clear plan to pay off the transferred balance, especially within the introductory period. If you just make the minimum payments, you might not clear the debt before the standard APR kicks in.
Multiple Balance Transfers – If you’re considering transferring balances from multiple cards, be wary. Juggling numerous cards and due dates can become confusing, and you run the risk of missing payments.
Cash Advances – Some people mistakenly assume that the favourable terms for balance transfers also apply to cash advances with the new card. This is typically not the case. Cash advances often come with higher interest rates and additional fees.
Are There Fees for Transferring a Credit Card Balance?
A balance transfer fee is a charge imposed by a credit card company when you move debt from one card to another. This fee is usually a percentage of the amount you’re transferring, although some credit card companies might have a minimum or maximum fee.
The fee can vary depending on the credit card company and the specific offer. Balance transfer fees currently range from 3% to 5% of the transferred amount.
Are There Credit Cards Without Balance Transfer Fees?
Yes, some credit cards offer promotions with no balance transfer fees. These cards can be an excellent way to reduce debt, especially when combined with a 0% introductory APR offer.
The Capital on Tap Business Credit Card, for example, comes with no fees on balance transfer, combined with 0% introductory APR for 12 months on purchases, which makes it one of the best options if you’re looking to transfer your balance.
The Best Balance Transfer Business Credit Cards
| Credit Card | Monthly Fee | Balance Transfer Fee | APR | Apply |
|---|---|---|---|---|
 Capital On Tap Business | £0 | 0% | 17.74% – 35.99% | Apply |
 MetroBank Business | £0 | 0% | 14.9% Variable | Apply |
 NatWest Business | £30 After 1 Year | 0% | 24.3% Variable | Apply |
 RBS Business | £30 After 1 Year | 0% | 29% Variable | Apply |
What is a balance transfer business credit card?
A balance transfer business credit card allows business owners to transfer balances from other credit cards onto the new card and usually offers a promotional interest rate for a set period on the transferred amount.
Why would a business want to use a balance transfer card?
Using a balance transfer card can be a good way to consolidate your debt and take advantage of lower interest rates to save money and pay off your balances faster.
What is the typical promotional interest rate for balance transfers?
While it varies by the card issuer, many offer an introductory 0% APR for a set period, after which a regular APR applies.
Are there any fees associated with transferring a balance?
Yes, many cards charge a balance transfer fee, which is typically a percentage (usually around 3-5%) of the transferred amount. However, some cards might offer promotions with no balance transfer fees.
How does the balance transfer impact my business’ credit score?
Initiating a balance transfer can temporarily lower your credit score due to the credit inquiry. But in the long run, consolidating debt and maintaining timely payments can positively impact your score.
What happens after the promotional interest period ends?
Once the promotional period ends, any remaining balance from the transfer will be subject to the card’s standard APR.
Are there any drawbacks to using a balance transfer card?
While balance transfer cards can be a powerful tool for debt management, potential pitfalls include the temptation to accumulate more debt, the possibility of higher interest rates after the promotional period, and potential fees.
Do all business credit cards offer balance transfer options?
No, not all business credit cards have a balance transfer feature. It is easy to fond out by reading the card’s terms and conditions or asking the issuer directly.
