If you have a meaningful amount of credit card debt building up, you might want to consider consolidating those debts into one place through a balance transfer loan. Balance transfer is a type of personal loan that banks in Singapore offer to help you refinance your credit card debt at lower interest rates. This is designed to help you manage paying your debt down in a more affordable way. Here, we have prepared a guide on balance transfer to educate our readers on how a balance transfer works, and what it might cost them.
How Do Balance Transfers Work?
As the name suggests, a balance transfer loan lets you transfer some or all of your outstanding credit card loans to one account that charges very low fee and interest rates. These loans usually last 3, 6 or 12 months, and usually requires you to pay a minimum amount each month and all of the remaining balance on the last month of your loan.
Because of its focus on credit cards, a balance transfer is usually only available to new customers who open a credit card or credit line at a bank. Therefore, if you already have a credit card with Bank A, you will not be able to get a new balance transfer loan. Once you apply, however, the balance transfer usually takes effect within 5 working days.
To make balance transfers an attractive product for people who need to figure out how to pay down their credit card debt without paying the usual 25-29% interest rates, banks usually offer 0% interest rate grace periods that last somewhere between 6 to 12 months. This is extremely cheap, even when taking into account the impact of processing fees. You must remember to pay down the debt at maturity, however, because these loans can charge you 20%-26% interest rates when your grace period of 0% is over.
All in all, balance transfer can save you a lot of money compared to what you otherwise would have to pay on your credit card debt. For instance, consider an example where you have S$5,000 on your credit card that will be charged 25% of interest rate. If you were to pay off 1/3 of that balance each month while paying interest, you would have paid S$208 just in interest. In contrast, a balance transfer with a one-time processing fee of 2% would have cost you S$100.
Cost of Balance Transfers by Bank
Most balance transfer loans in Singapore charge 0% APR during their grace periods. Grace periods are 3 to 12 month promotions that banks have to attract credit card customers. During these months, you do not get charged any interest on your unpaid credit card balance. However, do not be fooled into thinking that these loans are completely free.
For instance, balance transfers come with servicing fees that make the “effective interest rates” to be around 5% to 7%. Currently, ANZ is offering a promotion of 0% interest and 0% fee for new customers taking out a 6-month long balance transfer from them. Also, Citibank is offering a promotion for new customers, offering only 1.58% processing fee annualized to its balance transfer customers. Effective interest rates of balance transfer loans also take into account the impact of monthly minimum payment. Because you have to pay a certain portion of the money back every month, you don’t have full access to the loan for the full tenure. Therefore, it increases the cost of your loan slightly. Typically, most balance transfers in Singapore require 1% to 3% monthly minimum payment on your loans.
There are many other factors you should also consider. For instance, while banks usually have minimum transfer requirements of S$500, some banks will require S$1,000 or more. You should also remember that you can only borrow up to 95% of your credit line as balance transfer. Below, we have put together a summary table listing most important features you should take into account when choosing a balance transfer. You can compare the best balance transfer offer available from each bank and see which one suits you best.
|Name||Bank||Service Fee||Effective Interest Rate||Min Transfer||Max Transfer||Tenure (months)||Minimum Payment|
|Citibank Ready Credit Balance transfer||Citibank||1.58%||6.69%||500||90% of credit line||3||3% or S$45|
|1.58%||3.60%||500||90% of credit line||6||3% or S$45|
|1.58%||6.73%||500||90% of credit line||3||1% or S$50|
|1.58%||3.65%||500||90% of credit line||6||1% or S$50|
|ANZ Credit Card Balance Transfer (New Customers)||ANZ||0%||0%||500||95% of credit line upto S$30,000||6||3% for first 5 months|
|ANZ Credit Card Balance Transfer (Existing Customers)||ANZ||3%||6.55%||500||95% of credit line upto $30,000||6||3% for first 5 months|
|UOB Credit Card Funds Transfer||UOB||1.80%||7.38%||500||95% of credit line upto S$30,000||3||3% monthly minimum repayment|
|2.50%||5.34%||500||95% of credit line upto S$30,000||6||3% monthly minimum repayment|
|4.50%||5.20%||500||95% of credit line upto S$30,000||12||3% monthly minimum repayment|
|UOB CashPlus Funds Transfer||UOB||1.80%||7.34%||500||95% of credit line||3||2.5% monthly minimum repayment|
|2.50%||5.27%||500||95% of credit line||6||2.5% monthly minimum epayment|
|4.50%||5.06%||500||95% of credit line||12||2.5% monthly minimum repayment|
|POSB Credit Cards Balance Transfer||POSB||3.58%||7.61%||500||95% of credit line||6||3% or S$50|
|6.38%||7.32%||500||95% of credit line||12||3% or S$50|
|HSBC Credit Cards Balance Transfer||HSBC||88||4.39%||1,000||95% of credit line||6||3% monthly repayment|
|88||6.77%||1,000||95% of credit line||12||3% monthly repayment|
|Standard Charterd Funds Transfer||Standard Chartered||2.50%||5.18%||1,000||95% of credit line||6||1% of principal + interest & fee|
|5%||5.41%||1,000||95% of credit line||12||1% of principal + interest & fee|
|DBS Cashline Balance Transfer||DBS||3.58%||7.52%||500||93% of credit line||6||2.5% or S$50|
|6.38%||7.12%||500||93% of credit line||12||2.5% or S$50|
|OCBC Balance Transfer||OCBC||1.80%||7.22%||500||93% of credit line||3||3% or S$50|
|2.50%||5.19%||500||93% of credit line||6||3% or S$50|
|4.50%||4.99%||500||93% of credit line||12||3% or S$50|
|Maybank Fund Transfer||Maybank||1.88%||4.02%||2,000||95% of credit line||6||3% of S$10|
|0.99%||2.13%||12,000||95% of credit line||6||3% of S$10|
|1.88%||9.01%||2,000||95% of credit line||12||3% of S$10|
While you might be tempted to use balance transfers as a source of free debt, you should remember a few important things before making your decision. First, credit card balance transfers only allow you to borrow up to 95% (sometimes 90%) of your credit line, so you may not have access to a lot of capital through this. Second, balance transfers take about 5 working days, so you won’t be able to get this benefit of 0% interest as quickly as you might need.
Perhaps most importantly, however, you should always remember to pay off your balance transfer loan fully during the interest free period. When your grace period is over, banks can charge you interest rates that can be as high as 30% per year, which is charged daily. Also, always remember to pay the minimum monthly payment. While it’s only 1-3% of the principal amount, if you miss out on any of these payments, you have to pay a late payment fee. Late payment fees can be somewhere between S$60 and S$120 that will be charged each month you do not pay your monthly minimum. Therefore, if you use this product for anything other than balance transfer, you may end up paying a lot of money once your grace period is over.
If you need an emergency loan that is cheap & even faster than a balance transfer, you could also consider getting a personal installment loan, which takes usually 1 day and also comes with relatively low interest rates.