A fixed balance transfer rate is an interest rate that applies to money on one credit card that is transferred to another. The term may be used to discuss other personal loan balance transfers. The operative word in the phrase is fixed, which means the interest amount is set at a specific level and cannot be changed. The fixed balance transfer rate is not necessarily the same as the interest rate for new charges on additional amounts borrowed.
Many credit card companies have introductory or teaser rates for balance transfers, which expire after a set time period. These rates are attractive because they have low or no interest, but they’re not always good choices. If a borrower can’t pay off the amount she transfers to the card before the expiration of the introductory rate, she might end up paying much higher interest on the remaining balance. It’s always wise to look at the default interest rate to find out how much interest will eventually be due. Some security is obtained when the borrower gets a card with a fixed balance transfer rate instead, because there is a presumption the rate will stay the same.
Still, the fixed balance transfer rate isn’t a guarantee of everything. First, it doesn’t guarantee that new purchases will be assessed at a reasonable interest charge. Some lenders charge subprime interest rates, but try to attract customers who want to transfer money to a card with a low fixed rate. Also, there may be ways for a lender to raise the interest rate, even if it’s referred to as fixed. Failure for borrowers to make timely or sufficient payments might give the lender the right to increase the fixed rate to a much higher default rate.
Another potential pitfall exists when anybody plans to change cards and/or transfers a balance. On the one hand, a low fixed balance transfer rate could reduce interest amounts owed and lead to faster payoff of a debt. Not everyone accomplishes this. Borrowers can make lower payments on the transferred amount or max out the old card with new charges. This second common behavior is a quick way to accumulate more debt.
Those interested in the most advantageous offers on a fixed balance transfer rate should find lenders that also offer lower or matching rates for new purchases. Another consideration is if, after a balance transfer, there is any available credit left on the new card. Consumers should also ascertain if the fixed rate isn’t easily voided, and isn’t simply an introductory rate.
Payments to the new lender should meet or exceed old payments to help accelerate debt reduction. Moreover, closing the old credit card account reduces overspending. A borrower able to follow these steps and find just the right lender, which is more challenging to do since the credit crisis of the early 2000s, has a good chance of lowering interest payments on current amount owed, paying off present debt, and not adding additional debt.