Promotional rates, how they work
While promotional rates won't make your debt disappear, if managed properly they can help you pay less interest.
Balance transfer offer
A balance transfer is when you move an amount you owe from an existing credit or store card onto another card with a lower APR. There may be a charge, often called a balance transfer fee, which is added to the total amount that you owe.
A purchase offer allows you to pay 0% interest on new purchases you make for a fixed time. We don’t charge a fee when you take up a purchase offer.
This is a credit card with a balance transfer offer and a purchase offer of the same duration.
This means they end either on a fixed date (e.g. 31 December) or after a set period of time (e.g. 20 months). After this date, if you haven't paid off the balance, you'll be charged your purchase rate on the amount you still owe.
When the offer starts, there might be a fee. The fee is added to the amount you borrow.
For a fixed time, you pay a promotional rate of interest on both the amount you borrow and the fee – as long as you pay on time and don't go over your credit limit.
After the fixed time has ended – or if you go over your credit limit or don’t make your minimum payment in time – your interest rate goes up to the purchase rate.
For balance transfers, there’s usually a fee for a promotional offer. The fee is worked out as a percentage of the amount you transfer. We add it to the total amount you owe us when you take up the offer.
For example on a balance transfer of £2,500:
0.6% fee = £15
1.49% fee = £37.25
2.99% fee = £74.75
0% sounds like a good offer. And it can be, but only if you’re sure you’ll be able to manage your account properly. By this, we mean staying under your credit limit and paying at least your minimum amount on time every month. If you don’t manage your account properly, you’ll lose your promotional rate and it could have an effect on your credit rating.
1. Mark the end date of your balance transfer in your calendar
It’s easy to forget a date that might be in two years’ time, so add a note to your calendar. That way, you can check you’re on target to pay off your balance transfer before your offer ends.
Important because… if you still haven´t paid off your balance by the end date, your interest rate jumps up to the standard purchase rate.
2. Set up a Direct Debit
Setting up a Direct Debit can help you keep your promotional rate by ensuring that you always make a payment on time every month.
Important because… Paying the minimum amount on time each month means you’ll avoid default fees and keep your promotional interest rate. However, to pay off your debt as quickly as possible, you should pay more than your minimum amount each month. Setting up a regular fixed payment could help you to do this.
Here's an example of a customer transferring £2,500 to a 37 month balance transfer card with a 1.49% transfer fee. It assumes that there are no other transactions on the account, payments are made on the payment due date and the account remains within its credit limit
Balance remaining after promotional offer ends
Direct Debit set up to pay the minimum payment only (Note: Your first minimum payment would be £57 which falls each month as the overall amount you owe reduces)
Direct Debit set up to pay a fixed amount of £57 each month
Direct Debit set up to pay a fixed amount of £71 each month
£0 (this will cover both your balance and the transfer fee within the 37 months)
3. Keep within your credit limit
Make sure you have enough available balance in your account to avoid going over your credit limit.
Important because… if you go over your credit limit in any month during the promotion, you'll lose your promotional rate from the date you went over it. It will also have an effect on your credit rating.
There are three main things to keep in mind:
1. You can still benefit from up to 56 days interest free
To avoid standard interest you need to pay your full balance, excluding any promotional balances each month or interest will be charged on anything new you buy from the day the transaction appears on your account.
2. You’re more likely to have to pay more interest on your purchases
If you make purchases or withdraw cash using your card, you’ll have to pay a higher interest rate than your promotional rate.
What you can do:
If you don’t have a purchase offer, try to pay off any additional purchase in full by your payment due date to avoid paying interest. We charge interest on all Sterling cash transactions from the date they’re added to your account to the date you pay them off. This will always apply, even if you pay your total outstanding balance in full by the payment due date.
3. You might not pay off your balance transfer amount in time to keep your promotional rate
If you’ve made purchases, you should increase the amount you pay off each month, so you can clear your balance transfer before your promotional offer ends.