Zero in - while you still can

By SYLVIA MORRIS, THIS IS MONEY AND DAILY MAIL SAVINGS EXPERT
Updated:

 

ONLY the fleet of foot will get the best interest-free deals on credit cards as experts warn that the heyday of 0% offers is coming to an end.

The warning comes from accountants PricewaterhouseCoopers (PwC) who say borrowers who constantly switch from one 0% credit card offer to another are costing banks £1bn a year,

Already, Barclaycard and MBNA have introduced charges of 2% when you take up their interest-free balance transfer offers. Barclaycard's charge is capped at £35, though you can escape it altogether if you apply for the offer in a branch of the bank rather than over the phone, internet or by post. MBNA's cap on the charge is higher at £50.

These sort of wrinkles in special offers are likely to become more widespread.

Stuart Glendinning, director of credit cards at price comparison website moneysupermarket.com, says: 'It is increasingly likely that 0% cards will be linked to a higher standard interest rate and other conditions. So credit card terms are likely to be more complex in future.

'No provider will make money by lending at 0% if the customer makes no other use of their card. It is likely that card providers will try to identify 'frequent churners' and reject their applications irrespective of their credit score.'

Fierce competition between credit card providers means that there are more than 50 interest-free offers on cards currently available. Most are only for five to six months, although the best deals run for longer. LloydsTSB's Advance card has 0% on balance transfers for 12 months ( purchases are charged at a typical rate of 11.9% ) and so far it doesn't charge for transfers.

Sainsbury's Bank has 0% on purchases for 12 months from the time you apply and transfers attract a low rate of 5.9% until they're paid off. Halifax, Bank of Scotland and Virgin Money all have 0% on balance transfers and purchases for nine months.

Barclaycard's 0% deal runs until September 1, 2005, for balance transfer and three months on purchases when the rate typically becomes 15.9%. MBNA has 0% for nine months on balance transfers only.

Shrewd borrowers have even used the money saved by transferring a large credit card balance to earn interest in savings accounts or to save on repayments on offset or current account mortgages.

Richard Thompson, partner at PwC, says: 'In future, issuers are likely to become increasingly selective about which customers they offer balance transfers to, and they will focus more heavily on customer retention.'

Debt advisers are urging people with large debts to use these 0% offers to pay off their debts while they can.

Malcolm Hurlston, chairman of the Consumer Credit Counselling Service, says: 'Take advantage of these offers while they're still so freely available. You should use the time you have at 0% to overpay as much as you possibly can and don't build up a new debt on your old cards.'

The PwC report reveals that the credit card market is still growing strongly with around £60 billion owed on credit cards. Another report by industry analysts Datamonitor says that the UK is the only country in Europe with more credit cards in circulation than people.

• JANICE Rutledge, 24, used the internet to find a 0% deal when she wanted to transfer £1,000 from her HSBC credit card.

She chose Virgin Money's card as she pays no interest on the balance and purchases for nine months.

Janice, who lives in South London and works as a marketing executive, says: 'I've set up a direct debit to pay off £150 a month which is as much as I can afford. I'm hoping to have pretty well cleared it when the 0% ends in December, though I do use the card to make purchases as well. It's too easy to get out of control with credit cards. I'm making a concerted effort to pay it all off.'

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