New sting for credit card balance transfers

Banks levy 20% cash advance rates on unpaid balances

Thousands of Australians who took advantage of cheap credit card balance transfer offers to clear their Christmas debt may be in for a nasty shock when their balance transfer period ends in coming months.

Research by financial comparison website Mozo.com.au reveals a sneaky new credit card practice whereby unpaid balance transfers are hit with sky high cash advance interest rates once the introductory balance transfer offer ends.

As credit card cash advance rates remain at near record highs despite cuts to official interest rates, thousands of credit card holders will be hit with up to 19.99% interest on their transferred debt if they do not pay if off within the introductory period.

Mozo.com.au has identified more than 20 credit cards that apply the cash advance rate instead of the card’s standard interest rate to unpaid balance transfers when the introductory rate expires.

The worst offenders are the so-called ‘low rate’ credit cards marketed by the major banks such as NAB, Commonwealth Bank and Westpac. For instance the NAB Low Rate credit card lures customers with 0% on balance transfers for the first six months, after which any unpaid debt is hit with the cash advance rate of 19.99%.

Someone who transferred $3,000 debt to the NAB Low Rate card and only paid the minimum monthly repayment during the balance transfer period would still owe more than $2,600 after six months. At 19.99% interest, it would take over 12 years to repay the debt and incur more than $1,800 in fees and interest.

If the NAB Low Rate card’s standard interest rate of 10.99% was applied to the remaining balance instead, the cardholder would save over $800 in interest.

Rohan Gamble, managing director of Mozo.com.au, said, “We are very concerned that credit card holders are being trapped into paying sky high interest on balance transfers, when they thought they were doing the right thing by getting a so-called ‘low rate’ credit card.

“What makes this situation even worse is that credit card cash advance rates have only fallen by 0.26% over the last four months, but official interest rates have fallen by eight times this amount.”

Mozo.com.au research shows that the average credit card cash advance rate decreased only slightly from 18.44% in November 2008 to 18.18% in March 2009, while official interest rates fell by 2.0% over the same period.

Mr Gamble said, “Credit card balance transfer offers carry a huge sting in the tail for the unwary. We are urging Australians to check the interest rate that applies to unpaid balance transfers once the introductory offer ends.

“Credit card comparison sites such as Mozo.com.au help people to easily compare different credit card offers and avoid getting caught out.”

Balance transfer bad guys

Credit card	Balance transfer rate	Cash advance rate (and BT revert rate)	Purchase rate
NAB Low Rate	0% for 6 months	19.99%	10.99%
Commonwealth Bank Low Rate	5.99% for 5 months	19.99%	11.74%
Westpac Low Rate	3.99% for 6 months	19.98%	11.99%
HSBC Low Rate	2.99% for 6 months	19.99%	15.99%
Suncorp Clear Options	2.9% for 12 months	14.95%	11.99%

Balance transfer good guys

Credit card	Balance transfer rate	Balance transfer revert rate	Purchase rate
St George Vertigo	0% for 6 months	11.39%	11.39%
Aussie MasterCard	5.99% for 12 months	11.74%	11.74%
CUA Low Rate	4.9% for 6 months	11.85%	11.85%
Macquarie RateSaver	0% for 4 months	11.95%	11.95%
ANZ Low Rate	0% for 6 months	11.99%	11.99%