Andrew Hagger: Good savings to be made as credit-card firms do battle

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The battle between credit-card companies striving to offer the longest 0 per cent term for balance transfers shows little sign of flagging.

The latest moves in this field means it’s now possible to borrow interest-free for 26 months if you meet the credit scoring criteria.

Just two weeks ago Barclaycard was sitting at the top of the pile, occupying the first two places in the best buy tables with interest-free balance transfer terms of 25 months (2.9 per cent fee) and 24 months (2.8 per cent fee).

Then Tesco Bank gatecrashed the party and launched a deal for 25 months with a 2.9 per cent fee, putting it joint top with Barclaycard. Within hours Barclaycard hit back with a 26-month deal (3.5 [per cent fee) and 25 months (new lower 2.8 per cent fee).

These moves are not borne of a desire to offer the customer a more attractive deal, unfortunately. The real driver is a marketing strategy to ensure they feature at the top of the best-buy tables and get the volume of business that this delivers.

But if you are financially disciplined, there are some good savings to be made. For example, if you borrowed £3,000 interest-free with the latest long term Barclaycard offer your only cost would be the £105 (3.5 per cent) balance transfer fee. If you paid £119.42 per month for 26 months the balance and fee would be cleared with no interest charges to pay.

By comparison if you wanted to clear a £3,000 balance on a card at the market average of 18.1 per cent APR in 26 months you’d have to pay £139 per month, some £509 more expensive than the 0 per cent deal above.

Just because lenders look as if they are falling over themselves to offer long-term interest free deals doesn’t mean they are easier to get hold of, however.

You will need a top-notch credit record to get the best deals and if yours doesn’t meet the criteria you may be offered a shorter deal, possibly a higher interest rate and also a fairly small credit limit. Others will be less fortunate and find their applications declined.

If you are accepted for one of these products, make sure you don’t exceed your limit or miss a monthly payment as the lenders use this as a handy get-out clause to terminate the introductory promotional deal on the spot.

Another tip for savvy borrowers is to resist going for the card with the longest interest free period unless you intend on using it for the full term. It’s not uncommon for borrowers to switch to 0 per cent and then switch away again or repay the balance well before expiry, so for many people the balance transfer fee is also a key area to consider if they want to keep costs to a minimum.

The one-off balance transfer fee is much cheaper if you opt for a term three or four months shorter than the table-topping cards.

The Lloyds TSB Platinum Card is 0 per cent for 21 months but the balance transfer fee is currently just 1.5 per cent. Meanwhile, with the MBNA Platinum Card at 22 months it is 2 per cent, both well below the fee charged by Barclaycard on the 26-month deal. If you know you can repay over a much shorter timescale, the Royal Bank of Scotland Platinum card offers 13 months interest free with a balance transfer fee of just 1 per cent.

When 0 per cent deals hit the 20-month mark many people thought that was as far as they’d go. But with competition for those prized best-buy slots as keen as ever, I wouldn’t rule out a 30 month interest-free card before the year is out.

• Andrew Hagger is a personal finance expert at