What does a balance transfer cost

What does a balance transfer cost is the fee, plus the interest on whatever is left when the promotional rate ends, plus any interest on new purchases that lost their grace period. A balance transfer pays one creditor with a new line, usually a credit card offering a promotional APR for a stated number of months. The promotion is a contract with a start, an end, and a fee. The fee is often a percentage of the amount transferred, charged immediately, so the new balance is larger than the balance you moved.

This description follows United States disclosure rules under the Truth in Lending Act and Regulation Z. A transfer offered in another country uses that country’s fee and rate rules. Named United States issuers appear in search suggestions. This page does not price Chase, Wells Fargo, or any other brand. The fee you will pay is the one in that offer’s disclosure, on the day you accept it.

How much is a balance transfer fee

The Consumer Financial Protection Bureau says a balance transfer fee is a fee charged to move an outstanding balance to a different card, and that an issuer is allowed to charge that fee even on a zero-percent offer. In its card-shopping material, the CFPB describes a common one-time fee of 3 to 5 percent of the balance being transferred. That is a range of offers, not a statute that sets the percentage.

What a 3 percent balance transfer fee means, on $4,000, is $120 added to what you owe. What a 5 percent fee means, on the same $4,000, is $200. On $10,000 the same percentages are $300 and $500. If the offer says “3 percent or $10, whichever is greater,” a small transfer can cost the flat amount instead. Read the “whichever” sentence. The percentage alone is not the term.

The fee is principal you did not owe yesterday. A 0 percent rate on $4,120 is not a 0 percent rate on $4,000. If you pay the transfer off inside the promotion, the fee is still paid. If you do not, the fee remains inside the balance that steps up to the later APR.

How long the low rate has to last

An introductory rate, including a balance-transfer rate, has to stay in effect for at least six months unless you are more than 60 days late, under the CFPB’s statement of the rule. The issuer must tell you how long you will have the rate and what rate applies afterward. If the introductory rate is variable, it can still change during those six months when the index it tracks changes. Six months is a floor for a genuine introductory APR. The offer you are holding may be longer. The date in the offer is the date that reprices the remaining balance.

Being more than 60 days late is a separate switch. The CFPB says the card company can then increase the rate on all balances, including the transferred balance. A promotion is not a shelter from that increase.

What is a good balance transfer fee

“Good” is not a defined term in the regulation. On one amount, 3 percent costs less than 5 percent, and a $0 fee costs less than either. That comparison is arithmetic. It becomes a bad comparison if the cheaper fee is attached to a shorter promotion, a higher go-to APR, or a penalty rate that triggers easily. The useful test is two totals. First, the fee alone, if you will pay the new balance off before the promotion ends and you will not add purchases. Second, the fee plus interest at the go-to APR for as long as the leftover balance would actually take to clear. A transfer can be cheaper than leaving a balance at a high purchase APR, and it can be more expensive once the fee and the step-up are included.

People also search a specific issuer’s fee. That number changes with the offer and with the applicant. Use the Schumer box on the offer in front of you. A page that prints last year’s fee for a brand is not your contract.

Purchases, payment order, and deferred interest

The promotional rate often applies only to the transferred balance. Purchases may accrue at the purchase APR immediately. Excess payments above the minimum generally go to the highest APR balance under Regulation Z, which can leave the transferred balance sitting at the promotional rate while extra dollars attack the expensive one. That allocation is explained with the daily-interest note’s payment rule. It is a reason not to assume your extra payment is aimed at the transfer.

New purchases have a second cost. The CFPB has warned that carrying a promotional balance can cause you to lose the grace period on purchases. Without that grace period, new purchases accrue interest from the date they post, even if you thought the card was “0 percent.” If you usually pay the statement in full, the CFPB’s practical warning is to avoid new purchases on that card until the promotional balance is gone.

A deferred-interest promotion is a different product from an ordinary low APR. On a promotional APR, unpaid principal generally steps up to the go-to rate when the promotion ends, going forward. On a deferred-interest plan, if any of the promoted amount is unpaid at the end, the agreement can impose interest back to the start. The disclosure has to say which one you are being offered. Read that sentence before you treat “no interest if paid in full” as “0 percent either way.”

When a loan is the other tool

The old card is not finished on the day you apply. A transfer can be partial, it can be declined, and it can take days to post. Until the old issuer shows a zero balance, that card’s minimum is still due. Missing it to “wait for the transfer” is a late payment on the account you were trying to leave. After the transfer posts, check that the amount moved matches what you asked. A fee assessed by the new card is part of the new balance. A fee assessed by the old card, if the agreement allows one, is a separate charge. Count both.

A balance transfer is one way to put several card balances on a single account. A personal loan that pays the cards off is another. The second one has its own APR, term, and often an origination fee. Whether that path saves money is does consolidating loans save money. Leaving the cards where they are and sending extra dollars to the highest APR is the snowball and avalanche comparison. None of the three is free. The transfer’s price is the fee and the end date. If those two are acceptable and the balance will be gone before the end date, the interest during the promotion can be zero and the fee is the whole cost. If the balance will not be gone, price the go-to APR or do not move it.