Wallethub Article on Credit Card Transfer Fees

Posted On: Dec 22,2024 Posted By: Admin Comments: 169

Mr. D'Alessandro recently wrote an aricle for Wallet Hub about credit card transfer fees.  He has negociated the merchant fees for several companies over the year.

 Do you think people pay enough attention to balance transfer fees when shopping for a balance transfer credit card?

Transfer fees are a form of interest. Most people do not understand the stated rate on a credit card is not their actual rate if there is a charge for moving a balance. That means an advertised rate of 12% annual percentage rate (APR) is actually much higher if there is a 3%-5% transfer fee kicker.

Moving $2,500 over to a card with a 5% upfront fee means you effectively pay $125 in interest immediately.

If consumers understood that, they would likely be much less enthusiastic about chasing low APR offers that include high, upfront transfer fees. 

Do you think credit card companies need to do a better job of disclosing balance transfer fees?

The US has great truth in lending laws that require lenders to disclose effective rates on loans (interest + fees). Those same laws should be applied to credit card transfers. They are loan origination fees, and they need to be baked into the stated rates, in my opinion.

Why aren’t there more credit cards with no balance transfer fee?

Transfer fees are meant to offset the loss in profits that a bank earns from the store when you use your card to buy something. These merchants' fees are typically 1% - 3.5%. The card company does not get these dollars from a vendor when you transfer a balance. You also use up a portion of your credit line with a transferred balance that a new card offers you. By filling up your balance with dollars that did not earn a merchant's fee, the bank needs to capture those profits from the new customer. Remember, as long as those transferred dollars are still owed the bank can’t make anything from the cardholder on merchant fees on that portion of the credit line.

The banks' profit model is based on merchants' fees plus interest from the card holder. If a balance is transferred the same math applies but the cardholder pays the merchant’s fee as a transfer fee. Banks need both fees and interest to support credit card programs, that is to cover the cost of money to make the loan, to pay the cost of technology in the purchase/transaction approval process, to cover theft and fraud, to cover bad debts, and to pay the costs associated with administration and marketing. 

Without a transfer fee, your balance is not as profitable as it needs to be to cover all of these real expenses. As a result, I would be very surprised to see 0% transfer fees become the norm.

Explore the full article on Wallet Hub here.