Savvy credit card customers can get themselves a four year loan with an equivalent APR of just 0.77% by taking advantage of the best balance transfers and credit card new purchases offers available today.
With a minimum of effort you could borrow £10,000 over four years using credit cards and repay just £10,159 By comparison, the cheapest personal loan - from MoneyBack Bank - works out to £11,392, a difference of £1,233.
The practice of ‘rate tarting’, where you jump between introductory 0% transfers offers on credit cards, has been under pressure after the banks and credit card companies started charging fees of up to 3% on those balance transfers.
But it is still possible to find and compare balance transfers credit cards that can save you a fortune in interest. Here we explain how we did it. But first, the logistics.
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The 0% transfers offer vs. the balance transfer fee/standard APR
The key to effective ‘rate tarting’ is to find the right balance between the length of the introductory 0% transfers offer, the size of the balance transfer fee (the average fee is 2.67% as a point of reference), and a credit card’s standard APR.
For example, the Citi BMI Baby credit card offer gives you a 0% transfer for 12 months, and the Capital One Platinum credit card gives you a 0% transfer for 10 months - both are excellent credit cards. But to compare balance transfers based only on the number of months offered can be misleading.
This is because the Capital One Platinum credit card has a 1.7% balance transfer fee compared to 3% on the Citi BMI Baby credit card. And, even more importantly, the Capital One Platinum card reverts to a standard APR of 9.9% after the 0% transfers period. Compare this to the Citi BMI Baby credit card which reverts to a standard APR of 16.9%. Because of these differences the Capital One credit card is the cheaper option, the larger the amount of money you are transferring, the better the Cap One card gets.
Conversely, the Post Office credit card (standard APR: 15.9%) charges a 2.75% balance transfer fee with it's 10 month 0% transfers offer, while the Virgin credit card (standard APR: 15.9%) charges 3% but with a 15 month 0% transfers offer. So while you may pay a marginally higher fee on the Virgin credit card, the fact you have five more months to whittle down your debt before having to pay another fee more than makes up for it.
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Here’s how to get started
Let’s assume we need to buy something worth £10,000, which we plan to pay off over four years. Our first move must be to find the longest possible new purchases credit cards introductory 0% offer. The HSBC credit card fits the bill, with it's 12 months interest-free, so we use it to make our £10,000 purchase.
In Year One of our four years of borrowing we would normally look to pay off one quarter of the loan with regular monthly payments of £208.33. However, the card has a minimum monthly payment of 3% of the total balance owing, meaning we will have to pay £250 a month for the first year, reducing our debt to £7,000 by the time the introductory offer expires.
Now to transfer the balance: Did you know there are actually two credit cards on the market today that don’t charge a balance transfer fee?
They are the Ulster Bank Mastercard and the Norwich & Peterborough credit cards. The catch is that both only offer a meagre six months interest free on transfers. Nevertheless, there’s no fee, which is critical when the owed amount is still high, so we switch between each of them over the next year, paying monthly instalments of £194.
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We’ve borrowed and repaid £5,000 free over two years
As we reach the end of Year Two, we have already whittled our loan down to £4,666.67 and we have yet to accrue any interest or charges.
The Capital One Platinum credit card which I mentioned at the start – is only interest free for 10 months, but that low 1.7% fee will help keep costs to a minimum - apply here. Once we tack that balance transfer fee onto our remaining credit card debt, we owe £4,746.
Over the next 10 months we will knock this down to £2,768 with monthly payments of £200. We then need to clear the remaining £2,768 in 14 months to meet our target.
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The final 0% transfers switch
With the finish line now in site, we’ll need a card with a longer than usual interest-free transfer period so that we won’t have to switch again.
The Virgin credit card fits this bill at 15 months with a 2.98% fee, but a slightly better option for our particular situation is the Barclaycard Platinum VISA. This has a 14 month 0% transfers offer, but with a marginally lower 2.9% fee.
Tack the £80 fee onto the loan, and the total is £2,848, which we pay off over the final 14 months. And there you have it, a £10,000 loan paid off for a total cost of £10,159, with average monthly instalments of £211. Try beating that with a personal loan.
Diary of a rate tart: £10,000 loan over four years
| Amount Owed | Card Switched to | 0% Offer | Fee | Months |
| £10,000 | HSBC Credit Card - apply | 12 months | nil | 48-36 |
| £7,000 | Ulster Bank Mastercard | 6 months | nil | 36-30 |
| £5,833 | NPBS credit card* | 6 months | nil | 30-24 |
| £4,666 | Capital One Platinum card - apply | 10 months | £79 | 24-14 |
| £2,848 | Barclaycard Platinum VISA - apply | 14 months | £80 | 14-0 |
*Only available to existing Norwich & Peterborough Building Society customers
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A word of warning
Obviously we had to make a number of assumptions to carry out this illustration. First, that we had an good credit rating to ensure we always got the cards we wanted, and that our good credit rating was maintained for four years. Get your credit report here.
We also assume that all these credit cards - or an equivalent card - will be available over this period, and that we always remember to switch at exactly the right time to avoid interest and maximise the 0% transfers benefits.
Still it is clear that you can borrow a lot of money for very little cost, if you play your credit cards right.
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Learn more about balance transfer credit cards
The Egg credit card - more information
The Virgin credit card - more information
The Capital One Platinum credit card - more information
The Lloyds TSB Platinum credit card - more information
