Discover Financial Services and other large card issuers significantly cut back on their 0% balance transfer offers in recent months.
Photo: Andrew Harrer/Bloomberg NewsCredit-card offers touting 0% interest charges are appearing in fewer consumers’ mailboxes these days.
The number of solicitations offering to transfer borrowers’ balances to a card with no interest for a set period fell significantly in recent weeks.
These offers are often recommended to consumers looking to save on interest. While there’s usually an initial fee for the transfer, 0% interest means your monthly payments will go toward reducing the principal that you owe, which enables you to chip away at your debt more quickly. But it’s becoming tougher to snag one of these deals as credit-card issuers tighten their lending standards.
April marked the biggest year-over-year pullback for no-interest balance-transfer offers since June 2018, according to Mintel Comperemedia, which tracks the offers.
Credit-card lenders mailed out about 150 million offers to consumers in April that pitched transferring existing balances onto a credit card with a 0% interest rate, down 24% from the solicitations they sent out in March and down 28% from April of last year according to Mintel.
Other credit-card solicitations offering 0% interest rates for purchases made with a new card fell by 25% and 28% respectively.
“There is a much lower appetite for risk right now from issuers,” said Mark Miller, an associate director of insights for payments at Mintel. The “result is a pullback of offers.”
Several large card issuers significantly cut back on their 0% balance-transfer offers in recent months. Capital One Financial Corp. reduced the number of these offers it mailed out during the three months through April by 40% compared with the same period a year prior, according to Mintel. Discover Financial Services ’ offers fell by 17% while U.S. Bancorp’s offers fell by 46% and Barclays offers in the U.S. dropped 88%, according to Mintel.
While still widespread, the number of no-interest promotional offers are declining as issuers try to limit their exposure to possible loan losses at an already challenging time. Consumers seeking new financing since the pandemic are being reviewed even closer than before March out of concern that applicants might have recently lost their jobs or incurred some other financial setback. The pandemic has also resulted in banks mailing out fewer offers than usual.
Balance transfers are also riskier now than before the pandemic. For lenders, taking on the debt consumers currently have with a separate card issuer while unemployment remains high could result in more loan losses at a time when they are already expecting charge-offs to rise.
To get approved for one of these offers, you typically need a credit score of at least 700 along with sufficient income, said Ted Rossman, industry analyst at CreditCards.com.
“Even then, you’re not a shoo-in to be approved given how nervous issuers are these days,” he said.
Balance transfers entice borrowers to transfer debt they are carrying with another lender that is incurring interest charges to a card that won’t charge interest for a set number of months. Borrowers like the offers because they can result in interest savings, and lenders like the offers in part because they charge an upfront fee and collect interest if the balance isn’t paid in full by the end of the promotional period.
For customers considering 0% interest offers, here are some things to keep in mind.
Before signing up for these offers, consumers should compare how much they stand to save against the fees that are charged. Most offers charge a transfer fee of 3% to 5%.
For example, if you owe $5,000 and aim to pay that back in 21 months at a 16% interest rate, you’ll need to pay about $274 a month and will pay a total of roughly $765 in interest, according to Mr. Rossman.
But if you transfer the debt to a 0% card offer with a repayment term of 21 months that charges a 5% upfront fee, you’ll pay $250 to move your debt. If you pay the balance off by the end of the 21-month period, your net savings will be about $515, or the difference between the $765 interest you would have paid without this offer and the balance-transfer fee of $250, according to Mr. Rossman.
Remember to continue making the required payments on the old card until the balance transfer has been completed.
Consumers should also be aware of other costs, such as whether the card has an annual fee. Separately, find out if the 0% period applies to new purchases made on the card as well; if it doesn’t, using the card for additional expenses while you’re paying off your balance could result in two different payment plans that may be harder to manage.
Missing payments could derail your payment plan, as this can end the promotional period prematurely and rates can spike if you fall behind on payments. To prevent this from happening, make a plan to pay down your debt. An easy way to do this is dividing how much you owe by the number of months in your 0% offer, then making those payments to be debt-free by the end of the promotional period, Mr. Rossman said.
Consider putting your card away so that you’re not tempted to go out and run up balances all over again. “This defeats the purpose of the balance transfer,” said Greg McBride, chief financial analyst at Bankrate.com.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Veronica Dagher at veronica.dagher@wsj.com
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