Just as MBNA and Virgin increase their 0% balance transfer deals to 18 months interest-free, Barclaycard has retaliated with a 20-month deal – albeit with a higher balance transfer fee. Which? Money’s credit card expert Martyn Saville rates the new credit card deals.
Card one: Barclaycard
The new card from Barclaycard offers a 0% balance transfer deal of 20 months, the longest ever interest-free balance transfer deal in the UK.
If you’re paying interest on existing credit card debt, this new card offers a great way to cut your interest repayments and therefore pay off your debt much quicker. The downside is that the card comes with an increased balance transfer fee of 3.2%. If you’re likely to repay your whole balance within 18 months, you’d be better off with the MBNA card (see below). If you’re looking for the longest possible balance transfer deal, though, the Barclaycard offer is hard to beat.
The card has a standard APR of 17.5% once the 0% deal comes to an end. It also offers 0% on new purchases for three months.
Card two: MBNA
The MBNA Balance Transfer credit card offers 0% on balance transfers for 18 months from account opening (when made within the first 60 days). It comes with a 2.88% handling fee, much lower than the 3.2% fee imposed by Barclaycard. The card has a representative interest rate of 16.7% APR variable.
If you think you’ll pay off your bill within the 18-month promotional period, this deal is the best currently available.
The card also comes with a three-month 0% deal on new purchases. However, you should avoid using this card for new purchases due to the way MBNA allocates repayments to your account (see below).
Card three: Virgin
The Virgin credit card also offers 0% on balance transfers for 18 months if the transfer id made within the first 60 days. The deal comes with a 2.89% handling fee, making it cheaper than the longer Barclaycard offer and only a whiosker above the MBNA deal.
The card comes with 0% on purchases for three months and a standard APR of 16.8%.
Why you shouldn’t use the MBNA card for new purchases
We have discovered that if you take out any 0% balance transfer deal with MBNA and the card also has an initial 0% on purchases deal, which would expire first, you could end up paying interest on your purchases unnecessarily.
Under credit card repayment rules, all card companies allocate your repayments against the most expensive debt first. If two balances have the same interest rate (eg 0% on both purchases and balance transfers), most card providers allocate your payment to the 0% deal that will expire first.
However, where two balances are part of a 0% deal, MBNA instead allocates payments against balances with the highest ‘go-to’ rate first. As MBNA charges a higher standard interest rate on balance transfers than on normal purchases, you will pay off balance transfers first. This means you could end up paying interest on new purchases once that 0% deal expires.
An MBNA spokesman told Which?: ‘Our aim is and always has been to stay true to the spirit of “high-to-low” payment allocation; to ensure our methodology is simple and transparent and to ensure that it benefits the maximum number of our customers. On two 0% promotions that start at the same time and have different ‘go-to’ rates, we will allocate repayments to balances that have the highest go-to rate.
‘We have adopted this methodology because, for our customers – who we know well – balance transfers are very important. Balance transfers generally attract higher go-to rates and are for larger sums. Therefore it makes sense to allow our customers to pay down the balance on the portion of the loan that could ultimately attract the highest interest rate over time.’
Get the best credit card for your needs
If you need advice to help you choose, read the free Which? guide to finding the best credit card.
Once you know the best type of card for you, check out Which? Best Rate credit cards to find the most competitive deal available today, whether it’s a cashback card, a card for borrowing or the longest 0% deal on balance transfers.
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