Balance transfer credit cards and personal loans compared

If you have some credit card debt to pay off, you might be looking for a 0% balance transfer credit card deal. But might you be better off taking out a personal loan instead? Here are the pros and cons of each.

0% balance transfer credit cards

0% balance transfer credit cards might seem like the best option if you want to pay off your existing credit card debt. But there are some things to bear in mind:

  • 0% balance transfer credit card deals aren’t generally free. Although the credit card company won’t charge you interest, you’ll normally pay a balance transfer fee. This can be anything from 0.5% to 3% of the amount you transfer.

  • There are some 0% balance transfer credit card deals that don’t charge a fee. However, they’re not offered all the time.

  • You might not qualify for the longest balance transfer period. Some credit card companies offer 0% balance transfer deals of three years or more. But you have to have the best credit rating to get them. If you don’t have such a good credit rating, you may get a much shorter period to pay off your credit card.

  • You may be tempted to spend more money. Some balance transfer credit cards also come with a 0% interest period on purchases, so you may be tempted to use your credit card for spending. But that could mean you end up spending money you can’t afford.

  • If you pay the minimum, you won’t have paid off your credit card balance by the time the deal runs out. Credit cards generally only specify the minimum amount you have to pay off in order to maintain the contract. But if you only pay the minimum, you won’t have cleared your debt by the time the 0% balance transfer deal runs out.

What are the cheapest balance transfer deals?

Several credit card providers have shortened the length of their interest-free credit card deals for balance transfers in recent weeks. Here’s our rundown of some of the best 0% balance transfer cards still available.

Sainsbury's Bank Balance Transfer Card

What is offers: 0% introductory rate on balance transfers for 29 months.
Rate after introductory period ends: 21.9% pa (variable)
Balance transfer fee: 3% or 4% depending on your individual circumstances
The small print: You may be offered an interest-free period of 25 months or 21 months depending on your circumstances. You can collect 750 bonus points each time you spend £35 or more on Sainsbury’s shopping with your credit card, up to ten times in your first 2 months, that’s 7,500 points. The minimum monthly repayment is either an amount equal to the total of any fees or charges due, interest, default sums, plus 1% of the remaining balance; 2.25% of your balance; or £5, whichever is higher.
Apply: Online at Sainsbury’s Bank

Virgin Money Balance Transfer Credit card

What is offers: 0% introductory rate on balance transfers for 28 months.
Rate after introductory period ends: 21.9% pa (variable)
Balance transfer fee: 2.7%
The small print:  The minimum monthly repayment is either 1% of the balance plus interest, or £5, whichever is higher.
Apply: Online at Virgin Money UK

TSB Platinum Balance transfer card

What is offers: 0% introductory rate on balance transfers for 28 months.
Rate after introductory period ends: 19.95% pa (variable)
Balance transfer fee: 2.95%
The small print: Depending on your credit score, you might have to pay a higher rate of 24.95% or 26.95% once the 0% introductory period finishes. The minimum monthly repayment is either 1% of your balance plus interest or £5, whichever is greater.
Apply: Online at TSB

(Rates correct at time of writing 27/01/21)

Low rate personal loans

Although you won’t get an interest-free personal loan, you may be able to get a loan that charges less than 3% interest, depending on how much you want to borrow. For some people, taking out a loan may be a better option than using a 0% balance transfer credit card deal.  Here are some pros and cons:

  • You’ll pay off the loan at the end of the term. As long as you keep up the payments, you’ll know you will have cleared the loan at the end of the loan period.

  • You make a fixed payment every month, so you know exactly how much you have to pay.

  • You can overpay on your loan.. Although loans are designed to be paid off over the fixed term, the rules allow you to pay your loan off faster, and you’ll only pay a small penalty. In fact, you’re allowed to pay off up to £8,000 extra every year. The most you’ll be charged by way of a penalty is 1% of the extra amount you’re paying off.

  • Loans aren’t interest free. Interest rates on loans vary from less than 3% to over 15%. Generally, supermarket banks and non-traditional banks charge the least, and high street banks charge more.

  • You may not get the interest rate that’s advertised. Only 51% of those who’ve successfully applied for a loan have to be offered what’s called the representative annual percentage rate (APR) – this is the interest rate, plus any fees you have to pay. Depending on your credit rating, you may be offered a loan at a higher interest rate.

  • The lower the amount you want to borrow, the higher the interest rate. Most personal loan providers charge tiered interest rates. You’ll often pay the lowest interest rate if you want to borrow at least £10,000 (this level varies between providers). So if you only want to borrow a few thousand pounds, you may end up paying quite a high interest rate.

Where can I find the cheapest personal loan rates?

The personal loan rates you’ll be offered will depend on the amount you want to borrow and which provider you go to, so compare rates before you apply. Below is a selection of best buy personal loans on borrowing between £7,500 up to £15,000 with a repayment term of 1-5 years.

Loan provider: Cahoot
APR*: 2.8%
The small print: You must be over 21 and have an annual household income of at least £6,000 to apply.

Loan provider: TSB
APR*: 2.8%
The small print: This rate is available on loans between £7,500 up to £25,000. You must be aged over 18 to apply.

Loan provider: Sainsbury’s Bank
APR*: 2.8%
The small print: You must have an annual income of at least £7,500 and be over 18 to apply. Not available to self-employed applicants.

*Rates shown are representative annual percentage rates, which means at least 51% of applicants will be offered this advertised rate. Rates correct at time of writing 27/01/21.

Applying for a credit card or personal loan

If you make an application for either a credit card or a person loan and it’s refused, don’t then go straight to other providers and submit more applications. Every application you make will be recorded on your credit file, so if you make several in quick succession it could look to lenders as though you’re in financial difficulty and desperately need to borrow money.

If you want to check whether your credit application is likely to be accepted, many lenders now offer online eligibility tools that can tell you how likely you are to have your application accepted without performing a full credit search that leaves a mark on your file.

Have you recently taken out a balance transfer card or personal loan and were you offered the advertised rate? We’d be interested in hearing from you. You can get in touch at [email protected] or leave a comment below. 

Links with an * by them are affiliate links which help Rest Less stay free to use as they can result in a payment or benefit to us. You can read more on how we make money here.

Save on your utility bills today

It’s never been quicker or easier to see what you could save on your household bills. If your existing deal is set to expire, it only takes a few minutes to compare deals and switch online.

Never forget a renewal date. Relax and we’ll let you know: set up your free reminders here.


Loading comments...

    Leave a reply

    Thanks, your comment has been saved. We will review it shortly, check back soon.

    Sorry, there was a problem saving your comment. Please refresh and try again.

    Get the latest ideas, advice and inspiration​

    No spam. Just useful and interesting stuff, straight to your inbox. Covering finance, learning, jobs, volunteering, lifestyle and more.

    By providing us your email address you agree to receive emails and communications from us and acknowledge that your personal data will be used in accordance with our Privacy Policy and Terms and Conditions. You can unsubscribe at any time by following the link in our emails.