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What is a Balance Transfer Credit Card and How Does It Work?

Updated 23 Nov 2021 – By Team Loanstreet


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*This article was first written by Ng Shen Lee. The content and information on this article might be changed or updated periodically by Team Loanstreet without notice.

Hey, you. Remember the time you applied for your first credit card? Usually, it happens when one telemarketer gives you a call offering a great deal for a credit card, saying that you don't have to pay anything to apply for it. You accepted it without any second thought. Then, the second the card arrived in the mail, you started using it constantly without thinking too much... until the day you maxed it out. And before you know it, you got another credit card that you have also maxed out. If you are not careful enough, this may lead you to be drowned in debt and eventually lead you into bankruptcy.

Of course, this is preventable if you know how to manage your spending behaviour. However, if you're already somewhat in the rut and looking to settle your credit card balance at a cheaper price, you can do so by applying for a balance transfer credit card. 

First of all, what is a Balance Transfer Credit Card?


 

A balance transfer involves transferring your outstanding debts from one or more credit cards into a balance transfer credit card from a different bank with lower or zero interest fees. Basically, you apply for another credit card to settle all your other credit cards’ debts! The goal? To save money on the interest of course! 

 

You might wonder if something that is convenient and sounds too good to be true actually exists, worry not, let us explain.

 

Assuming you are RM8,000 in debt on your credit card with a 15% interest rate per annum. You decide to transfer this balance to a different credit card with a 0% interest rate for the first 12 months. Provided you pay off the full amount within those 12 months, you save RM1,200 on interest! (Not including the upfront fees/balance transfer fees required).

 

Banks do this in the hopes of converting you over to their bank, which is why you won’t be able to do a balance transfer from let’s say, a Maybank card to another Maybank card. But, they could also earn from other aspects, for example, through the balance transfer fees, handling fees, as well as the high-interest rates charged when a debtor couldn’t pay off the amount due within the stipulated time frame, which is usually 6 or 12 months.

“Why should I apply for one?”


Image source: Imgflip
 

Here are some benefits of using a balance transfer credit card. 

1. A low introductory interest rate
Most balance transfer credit cards offer a low introductory rate. By utilising that rate, you can pay much less interest over the life of the balance.

2. Getting the chance to consolidate your credit card debt
Being able to consolidate multiple balances onto one card allows you to only have to deal with one interest rate and one monthly payment. This can certainly give you peace of mind as you work to pay off your debt.

3. Being able to pay off your credit card debt faster
Furthermore, the lower interest rate could provide you with the extra savings you need to pay off your credit card balances faster. 

However, do keep in mind that there are some drawbacks that should also be taken into consideration.

1. An upfront handling fee

Image source: Loanstreet Credit Card Comparison 
There’s usually an upfront handling fee of typically 3%. So if you transfer RM10,000, the upfront fee will be RM300. Though many cards will offer free upfront handling in exchange for a small interest rate. For example, the HSBC Amanah Premier World Mastercard® credit card offers you the option of no one-time upfront handling fee but charges a 1.99% interest rate per annum.

2. Expiration of the introductory rate

Image source: Loanstreet Credit Card Comparison

If it sounds too good to be true, it probably is. Issuers may prompt you with their 0% interest rate claim, but if you inquire more, you may find out that the 0% interest rate only applies for the first 6 months. After those 6 months, the rate may jump to an exorbitant 15%! Like the Aeon Platinum MasterCard, for example. 

3. Purchases might be of a different rate higher than the introductory rate
Just because your card is interest-free, that doesn’t mean the additional purchases made with that same card are interest-free as well! So keep that in mind when you’re tempted to make more purchases to refrain from racking up even more debt.

“Okay, so should I apply for one & how?” 

 

Image source: quickmeme


A balance transfer credit card is more suitable for people who could pay off all or most of their debt during the introductory rate period. When the introductory period ends, they will be charged another high-interest rate on the balance. Therefore, only think of applying for a balance transfer if you have the confidence to pay back the amount due within the stipulated time frame. 

So, are you ready to get your first balance transfer credit card?

When it comes to choosing a balance transfer credit card, it’s important to compare thoroughly. Here are things to take note of while choosing a balance transfer credit card:
 

  • The minimum duration for some balance transfer credit cards ranges from 3 months to 36 months.
  • The interest rate can range from 0% p.a. To 10.22% p.a.
  • The minimum transfer amount can range from RM500 to RM5,000.
 

At Loanstreet, we’ve also compiled all the info you need to know including interest rates, minimum transfer amount and the various fees and charges involved all right here! Then, all you have to do is press apply on the card of your choice and fill in your details. You will receive a phone call from us within 1 working day in order to check your eligibility, after which we will submit your application to the banks. From then on, you will deal with the banks directly until your application is approved and your credit card is received. What are you waiting for, click here to apply now! 

 

*The above article is intended for informational purposes only. Loanstreet accepts no responsibility for loss that may arise from reliance on information contained in the article.

 

ALSO READ:

Is a Credit Card Really Right For You?

A Guide to Getting Your First Credit Card

5 Credit Card 'Hacks' That Many Aren't Taking Advantage Of

 
 
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