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If you’re thinking about transferring a balance from one credit card to another, it’s important to know the new card’s balance transfer APR and how it works. This is particularly important if your card offers a balance transfer promotion with a low or 0% APR. Here’s what you need to know.
What Is a Balance Transfer APR?
A balance transfer APR is the interest rate that credit card issuers charge on a balance that you move to your credit card from another credit card or loan.
Some credit cards specialize in offering balance transfer promotions to new customers, allowing them to pay a low or even 0% APR on transferred balances for a set period of time. Some card issuers may even offer balance transfer checks to existing customers with the same effect.
In both cases, the promotional rate makes it possible for the cardholder to pay down otherwise expensive debt interest-free. Once the promotional period ends, the ongoing balance transfer APR is based on your creditworthiness at the time of your account approval and typically matches the APR on your purchases.
How Does a Balance Transfer APR Work?
Before you apply for a credit card, you can find its balance transfer APR on the card issuer’s website, specifically the card’s product page or its disclosure statement, also known as a schumer box. If you already have a credit card, you can find the balance transfer APR on your most recent statement.
If you get a new credit card with a balance transfer promotion, you’ll typically get a 0% APR for anywhere between 12 and 21 months. Note, however, that some cards may offer lower APRs but not 0%. You may also see offers from your existing cards in the 6-12 month range.
During the balance transfer promotional period, you can pay as little or as much toward your transferred balance with no interest, as long as you make at least the minimum payment. If you don’t pay off the transferred amount before the promotion ends, however, you’ll pay interest on it based on your card’s ongoing balance transfer APR.
Additionally, if you miss a payment or don’t pay the minimum amount required, you may lose the promotional rate. Some cards may even assess a penalty APR, which is typically higher than the standard balance transfer APR.
During this time, you may still be charged interest on new purchases unless your credit card also has an introductory 0% APR promotion on purchases or you pay off your transferred balance.
If you don’t have a balance transfer promotion on your account, interest will start accruing on the date of the transaction using the card’s balance transfer APR.
Another thing to note is that credit card issuers will also typically charge a balance transfer fee, which usually ranges from 3% to 5% of the transfer amount. This fee is added to your balance, which means that you may end up paying interest on both your balance and the fee.
How To Calculate Balance Transfer APR
Your credit card issuer will determine your balance transfer APR from a listed range based on your creditworthiness. If your card has a 0% APR promotion, you’ll pay no interest at all during the promotional period.
Depending on how much you pay off and the original card’s APR, you could save hundreds of dollars. For example, let’s say you’re moving $4,000 over from a card with a 20% APR. The new card offers a 12-month introductory 0% balance transfer APR with a 3% balance transfer fee.
With a new balance of $4,120, a monthly payment of $343.33 would ensure you have a zero balance at the end of the promotional period. If you’d paid that same amount toward the $4,000 balance on the original card, you’d pay it off in 14 months and pay $484.43 in interest charges — that’s nearly $365 in savings after the balance transfer fee.
If you don’t have a 0% APR promotion or you’ve reached the end of your promotional period without paying the balance in full, here’s how you’ll calculate how much interest you’ll incur based on your balance:
- Find your balance transfer APR and your current balance (not including purchases) on your most recent credit card statement.
- Divide the APR by 12 to get your monthly periodic rate.
- Multiply the monthly periodic rate by your balance.
For example, let’s say you have the same $4,120 balance on a new card offering a 10.99% promotional balance transfer APR.
To calculate how much interest you’ll pay the first month, start by dividing .1099 by 12 to get 0.00915833. Then, you’ll multiply 0.00915833 by $4,120, giving you $37.73 in interest for the month. Each month, that amount will decrease as you pay down the balance.
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If you’re thinking about moving a balance from one credit card or loan to a new credit card, it’s important to know what the costs will be. Even if a card offers an introductory 0% balance transfer APR, consider whether you’ll be able to pay off the balance before the promotion expires and what the balance transfer APR will be once it’s over.
Understanding the balance transfer process and how the APR can impact you can help you make better decisions about your debt and maximize your savings.