If you are interested in transferring your credit card balance to a card offering a low-rate or zero interest for a certain period of time, make sure you know what the rate "reverts" to after this time expires.
The revert rate is the rate of interest charged when the low-rate or zero interest period finishes. For example, BankWest is offering a zero interest rate for four months on all balance transfers and purchases. After this time the rate reverts to 12.99 per cent. Virgin Money offers a credit card with a 5.65 per cent interest rate that reverts to 12.65 per cent.
The other rate to be aware of is the "purchase rate". This is the rate of interest charged for additional purchases - that is new purchases made on the card that have been made after the balance has been transferred.
So while you think that you will be paying a low rate on all purchases for the introductory period of the card - usually six months - you may find that you are only paying that rate on the amount that you transferred. All new purchases made to the card are being charged at a higher rate.
Another point to look out for is how long the balance transfer receives the preferential interest rate. In some cases, the balance transfer is charged at the low rate for the life of the balance. For example, Citibank charges a low rate for the life of the balance transfer, that is you pay the same interest rate until that outstanding balance is paid off, no matter how long it takes.
Points to consider:
- Find out how long the introductory period for the low-interest offer is before it reverts. It does vary between institutions.
- Find out what the revert rate is.
- Ensure you fully understand what rate you will be paying on new purchases (the purchase rate) before you transfer your balance onto a new card.
- Find out what the fees on the card are and if they change after the introductory period is over. If the fees and the revert rate are high and you don't pay off the balance in the introductory period, it may not be worth your while changing cards.