What is a Money Transfer Credit Card?
Not to be confused with their similarly named counterparts – balance transfer cards – a money transfer card allows you to borrow money on a credit card by paying a lump sum directly into your bank account.
Now doesn’t that sound appealing? You can then use this cash as a loan or as a way of clearing an existing overdraft. Many money transfer cards come with zero interest periods, so as long you pay all of the money back within the agreed timeframe, you don’t pay interest on the borrowing. However, to do this type of borrowing right, there are a few rules to follow.
Let the wonders unfold as we lay bare the important facts about money transfer credit cards...
How do money transfer credit cards work?
- Similar to a balance transfer card
- Transfer funds from your credit card to your current account
- Pay off existing debts
- for set period
When you apply for a money transfer card, if accepted, you’ll be given a credit limit and perhaps a period of or lower rate borrowing to adhere to. You’ll often need to make the transfer within a certain number of days after opening the card in order to qualify for the offer.
You’ll also need to make payments on time each month and stay within your credit limit or risk losing that rate. Usually providers cap how much of your limit you can transfer at around 80-90%. You’ll generally be asked to pay a transfer fee of up to around 4 per cent, which is considerably lower than the most attractive personal loan or overdraft interest rates right now.
Why money transfer cards can be cost effective
Even the wisest among us can sometimes lose our way when it comes to credit, so if you’ve got an overdraft you’re paying off that you’d like to clear more cheaply, a money transfer may be the solution. You could also use the funds to pay extra off other debts like personal loans as long as doing so does not incur overpayment or early repayment charges that wipe out the savings made.
If you want to clear credit card debt, look at a card instead. It’s not all about giving yourself a little extra space to breathe though. By effectively getting a loan at a cheaper rate you can pay for other things too. For goods and services you can’t pay for by credit card, a money transfer can be a cost-effective way of borrowing.
To make the best of it, never borrow more than you need. Then work out how much you’ll need to pay off each month to clear the debt before a higher rate of interest kicks in and you’re onto a money saver. If you take out this type of card it’s important to be strict about not slipping back into your overdraft or other borrowing. Doing so could leave you feeling more uncomfortable than squeezing into a pair of lycra yoga pants that are a size or two too small. Things can quickly start to spiral out of control.
Purchase interest rates
Purchase interest rates on these cards are unlikely to be as attractive as the transfer rate, so steer clear of spending on the card unless you have secured a 0% interest purchase period. Also, make sure you have a plan on how you’ll clear the debt before you start paying interest. Like other credit cards, never withdraw cash on a money transfer card – you’ll likely incur fees and high interest if you do, as well as potentially harming your credit score.
Not sure a money transfer credit card is for you? See our guides to understanding credit cards, which credit card is best for me or find alternatives to credit cards here.