Balance transfer basics

Brush up on balance transfers before you make a decision about a promotional balance transfer offer. Here, we provide some information that might help you better understand how promotional balance transfer offers work.

What is a promotional balance transfer?

Promotional balance transfer offers can vary – so it’s important to check the specific details (including terms and conditions) that apply to each offer.

Generally though, a promotional balance transfer offer is an offer for a promotional or ‘introductory’ interest rate to be applied to a transferred balance, when that balance is transferred from one (or more) personal credit cards to another credit card.

Depending on the card and the offer, the promotional interest rate may be lower than the rate that would typically apply to that card. But this promotional interest rate may only apply for a limited period of time, before it reverts to a higher ‘standard’ interest rate.

Learning the lingo of balance transfers

To help you understand some of the language that can be used with promotional balance transfer offers, here are some terms that may be used by credit card providers.

Again, it’s important to read the terms and conditions on the particular offer (and the card) carefully if you are considering an offer. Take note of all the dates, rates and fees, and ask questions if you are unsure about anything before applying for the offer.

• Promotional balance transfer interest rate (may also be referred to as a ‘special interest rate’) – at ANZ, this is the interest rate that applies to the transferred balance on a card with a balance transfer offer, for the promotional period.
• Promotional period  – this is the length of time that the credit provider is offering to apply the promotional balance transfer interest rate to the transferred balance. For example, the promotional period might be six months from the date an application for the offer is approved, but may also be some other period. You should check the offer for details.
• Revert rate – this is the interest rate that applies to what’s left of the transferred balance once the promotional period (and the applicable promotional balance transfer interest rate) ends. At ANZ, it can be referred to as the ‘interest rate on standard balance transfers’ which is currently the same as the cash advance rate that ordinarily applies to that type of card.
• Interest rate on purchases  – depending on the terms of the balance transfer offer, this is the interest rate that may be applied to purchases made on the credit card that the balance has been transferred to. It can be a different rate to the promotional balance transfer interest rate.
• Cash advance interest rate – this is the interest rate that applies to cash advances on a credit card. What is considered a ‘cash advance’ may vary amongst credit card providers. Be aware, the cash advance rate can apply to transactions other than just cash withdrawals on a card. At ANZ, you’ll find information about what is considered a cash advance in the Credit Card Conditions of Use (PDF).
• Balance Transfer Fee – a fee may be charged to move a balance across to a new card when you take up a promotional balance transfer offer. At ANZ, you can refer to the terms and conditions of the promotional balance transfer offer for details of the Balance Transfer Fee that applies.

Consider what’s right for you

Balance transfer offers can vary widely between credit card providers. You might find one offer that has a low promotional balance transfer interest rate (for example, some are set at 0%) but a very short promotional period. Or another that has a longer window to repay the balance, but a higher revert rate, or purchase interest rate. Some have higher balance transfer fees than others.

To work out if an offer is right for you or if a balance transfer is appropriate at all, you might want to consider reviewing all your existing financial commitments and forming a plan for how much you could afford to pay off each month. Consider the various features, rates, terms and conditions that apply to the offer and your existing (and any new) card – not just the promotional balance transfer interest rate.

Remember, if your goal is to reduce or pay off the amount being transferred in the promotional period you’ll need to work out a plan to achieve this. If you don’t pay off the full transferred balance in the promotional period, you could end up paying a higher interest rate on the outstanding balance than the rate you were paying on your old card.

Beware the traps

Read up on common balance transfer traps and how to avoid them.