What is Balance Transfer?

Balance transfer – a loan that is approved base on the available credit limit in the consumer credit card.

Example 1:

Mr Tan has a credit card with a credit limit of $10,000. The bank allows Mr Tan to do a balance transfer of 80% of the credit limit available. Thus, Mr Tan could take a balance transfer of $8000. The balance transfer interest is different from a normal credit card interest of 24%. Generally, balance transfer tenure is 6 months and 12 months.

Bank A charges an interest of 3% annually on Mr Tan 6 months tenure Balance Transfer:

Annual interest = 3%
Balance transfer tenure = 6 months
Balance transfer interest = 3% / 2 = 1.5% interest
Balance transfer amount = $8000

Total interest paid to Bank A = total balance transfer approved x balance transfer interest = $8000 x 1.5% = $120
Monthly installment = (total balance transfer approved + total interest paid) / loan tenure = ($8000 + $120) / 6 = $1353.33

If Mr Tan chooses a 12 month tenure for his Balance Transfer,

Annual interest = 3%
Balance transfer interest = 3%
Balance transfer amount = $8000

Total interest paid to Bank A = total balance transfer approved x balance transfer interest = $8000 x 3% = $240
Monthly installment = (total balance transfer approved + total interest paid) / loan tenure = ($8000 + $240) / 12 = $686.66

Example 2:

Sometimes bank offer 0% balance transfer interest but charges an admin fee.

Mr Tan took a balance transfer of $8000 from Bank B for 12 months and pays an admin fee of 2% upfront with 0% interest.

Balance transfer amount = $8000
Admin fee = $2% = $160

Monthly installment = total balance transfer approved/ loan tenure = $8000 / 12 = $666.66

Take note that usually the admin fee is deducted upfront. This means that if Mr Tan took a balance transfer of $8000, only $7840 ($8000 – $160 admin fee) is being disbursed to his account.

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