Saturday, May 11, 2013
Dubai: Credit cardholders are well advised to watch out for interest rates and other charges when transferring their balance to another bank, to stay on top of their borrowing.
Banks in the UAE are offering customers the chance to settle their credit card balance at zero per cent interest over a set term. Based on the data supplied by personal finance website MoneyCamel.com, banks allow borrowers to transfer up to 50 per cent to 95 per cent of their credit limit.
Depending on the bank, a borrower will normally have the option to pay each month a “minimum amount” equivalent to 5 per cent of the balance for three to 12 months without interest.
However, what is often overlooked is that after the interest-free period expires, the prevailing or standard interest rate of up to 2.89 to 2.99 per cent will automatically apply to any leftover balance.
Payment delays will also invite other charges and there will be processing fees to pay. Financial experts warned that, if borrowers are not careful, they could end up repeating the cycle of debt.
Steve Gregory, managing partner at Holborn Assets, advised that a great way to avoid paying hidden charges is to settle all the transferred balances within the promotion period.
“It’s a great idea to get on top of your credit card and this is one way to start. But pay the same as you paid at the old bank and reduce your balance as much as you can before you start to pay interest on the new card,” Gregory advised.
“Credit card debt is the most expensive there is. UAE has the highest credit card interest rates in the GCC, and possibly the world,” he added.
Preeti Bhambri, founder of MoneyCamel.com said the balance transfer offers are still a cost-effective option for borrowers who are struggling with their credit card borrowings.
“By choice, the borrower can pay more [than 5 per cent] to avoid interest. So if the customer [has a Dh20,000 balance] and pays Dh2,000 every month, his outstanding balance at the end of three months would be Dh14,000. At the end of 3 months, he will need to pay the interest, but essentially, he would have saved Dh170 [2.89 per cent multiplied by Dh6,000],” explained Bhambri.
Bhambri, however, clarified that in case the monthly instalment is set at Dh2,000 and the leftover balance at the end of the interest-free period exceeds that amount, the customer will need to pay only Dh2,000.
By Cleofe Maceda Senior Reporter
Gulf News 2013. All rights reserved.
