Balance transfer offer – a phrase you’ll likely come across when shopping around for a new credit card… but what does it even mean? Why would someone opt for a card that offers zero percent interest on balance transfers over a card that offers points towards a vacation?
In a nutshell, those who are strapped for cash may want to jump at the opportunity to transfer the balance on their current credit card to another card at a lower interest rate.
Here are the top two reasons why you’d want a credit card with a low balance transfer rate.
1) You need more time to pay off current credit card debt
Let’s say you have an outstanding credit card balance of $5,000, but you don’t have enough right now to pay off the balance in full. You may be tempted to turn to minimum payments, but if the card has a 19.99 percent interest rate (like most cards do), it could take you over 25 years to pay it off and cost you $9,182.73 in additional interest! Insane!
Even if you manage to pay $500 each month, it will still take you one year to pay off the total debt and cost you $514.93 in additional interest payments.
On the other hand, if you switch to a card offering a low-interest rate on balance transfers, you can transfer that $5,000 balance to your new card, and pay it off at your new lower interest rate. Let’s say the card offers zero percent interest on balance transfers for the first year – if you continue to pay $500 each month towards your balance, it will only take you 10 months to pay off your debt and cost you NOTHING in interest.
To transfer the balance, though, you usually need to pay a fee – typically one percent of the balance being transferred. So if you were transferring that $5,000, you’d likely have to pay a fee around $50. But that’s still way less than you would’ve paid if you stuck with your old card!
2) You need a short-term loan
Say you plan on renovating the kitchen this summer or you want to do some landscaping in the backyard. If you put the cost of the work on your current credit card, and then switch the balance to a low-interest balance transfer card, then you essentially get a short-term loan for peanuts.
Given that the going rate for a line of credit these days is roughly at prime or more, you won’t get a loan for any lower than three to four percent interest. In comparison, a low-interest balance transfer credit card and may give you a rate of zero to 1.99 percent.
If you’re looking for a low-interest rate for a longer term though, you could score a deal through RateSupermarket.ca. By getting a personal loan through RateSupermarket.ca, you can have peace of mind knowing you are receiving the amount you need at a competitive rate – our lenders offer rates as low as 4.6 percent APR, for terms between six and 60 months.
The best low balance transfer credit cards in Canada
Which low-interest balance transfer credit cards are the best in Canada? According to our Best of Finance methodology, here are the top picks.
With no annual fee and an exceptionally low interest rate, the American Express Essential™ Credit Card is an eye-catching option to anyone who is looking for a manageable way to build credit, without having to pay off the entire balance every month. A 1.99 percent rate on balance transfers is available for the first six months of membership, so if high-interest debt is plaguing you on your existing credit card, switching to this one could give you some breathing space. The flip side of such a low-interest card, however, is that you don’t earn points or cash-back when making purchases with it. Still, taking into account the added perks you get from being an AMEX cardholder, from exclusive offers to an impressive suite of insurance, this credit card could be a welcome addition to your wallet.
If you’re looking to consolidate and reduce your debt, then the MBNA True Line® Mastercard® offers some of the lowest interest rates on the market. But since this is a low interest credit card, that means you don’t earn any points or cash back. This card is really for those who have large, unpaid balances on other cards, and need extra time to pay it back. The MBNA True Line® Mastercard® has a zero percent promo interest rate for six months on balance transfers (for a limited time), so this gives you the benefit of a little cushion time before having to pay your debt back. But if you still have lingering debt after six months, the low interest rate means you also pay less in interest. Standard Annual Interest Rates of 12.99% on eligible purchases, 12.99% on balance transfers✪ and access cheques, and 24.99% on cash advances.
This post has been updated.
*Rate, product information and rewards estimate are subject to change at any time and does not constitute financial advice. Please contact supplier for complete details.