Balance transfer credit cards
This plastic card of approx 4.25 x 2 inches in size, commonly known as Credit Card, has become very popular and is rampant in use among middle-class to upper-class people. These cards are issued by many financial institutions including banks and commercial establishments. Credit Card helps its owner/holder to avail instant credit. The issuing firms often prescribe a credit limit for each card. The limit is determined on the basis of various factors such as the income of the customer, repaying capacity and the customer creditworthiness.
The card issuers have also stipulated criteria for the customers to be eligible for the card, and stringent rules/procedures are adhered to before sanctioning cards. Verification of the credentials and the proof of residence are some of the procedures followed before issuing credit cards. Once issued, these cards are generally valid through a period of two years. The credit card bears the information viz., Name of the holder/owner, Card Number which is usually made up of 16 digits, validity period and the logos of the issuing firm and the Credit Card Company(Visa, MasterCard, American Express, etc) and there is seems to be a standardization in this aspect with all credit cards. On the reverse of the card one will find a paper stripe stuck to the card. The card holder is required to sign on this stripe. The card also comes with another stripe with magnetic coating. This space contains important personal details of the credit card holder pertaining to his/her credit card account. Apart from these the reverse side contains a three digit pin which is required for making online or over-the-phone payments. One should restrain from parting with the card number and the pin to strangers and should be used only through trusted channels.
The credit that can be availed through the card may be in the form of cash or kind. One may use the card to settle payments in the approved merchant firms. Simply put, the card can be used to make payment where such facility is made available. The cards can also be used to transact over internet, which is termed as online payment. When the payment is made offline, the card is swiped through a machine for necessary validation and authorization of payment. Once the necessary validation/authorisation is obtained, a payment authorisation slip is produced by the swipe machine at the vendors end and the card holder would be asked to sign on the slip. The vendor forwards this record to the credit card issuers billing department for settlement for direct reimbursement. The Credit Card issuing company sends a sends a statement to the cardholder, usually on a month to month basis, listing all the charged purchases and requesting payment immediately or in instalments.
Apart from using the card for credit purchases, the card can be used for withdrawing cash from ATMs (Automated Teller Machines).
There are various charges for using the credit card namely annual fee, interest on the outstanding balance amount due to the card issuer, charges while transacting at the retail outlets. Transaction charges at the retail outlets are sometimes borne by the retail establishments that accept them.
Balance Transfers Why
Credit Card issuing companies usually offer various benefits/facilities to its customers i.e. card holders. Balance Transfer is one among them.
Typically, one person may hold Credit Cards of various establishments and, as a result, he may end up having more than one card in his wallet. This also means that, if he is in regular use of all the cards and if he also avails the credit facility offered by the Card issuing firms, he might have a considerable debit balance with each of the card account. As the Card issuers often charge exorbitant interest on the outstanding balances, a card holder will invariably end up repaying significantly more sum than what he has availed in the form of credit.
Since there are so many players in the credit card market, competition rules and Credit Card issuing companies often try to outwit each other in an attempt to capture or garner more market share. Balance Transfer facility is born out of such an attempt by the Credit Card issuers.
How does it work
Under this facility, a card holder is allowed to transfer an approved sum that is remaining outstanding in one credit card account to another card account managed by a different bank or establishment. For example, an amount that is remaining outstanding to be paid against the credit card issued by company can be transferred to the credit card account held with another company. Now the question is why one should opt for this balance transfer. Obviously, the card holder should benefit or at least appear to benefit out of this transfer, otherwise no one will opt for such transfer. Rightly so, cardholders who opt for balance transfer are offered with discounted interest rates on the amount so transferred. From the credit card issuing companys point of view, they will stand to gain in the form of more credit in the market, more customers and
Why customers may go for Balance Transfer
Following are some of the benefits extended by the credit card issuers to attract more customers:
a) Some card issuers offer 0% interest for a limited period, on the balance transferred amount. Once the limited period expires, normal interest rates will apply or a discounted rate will apply. (E.g. BT facility offered by State Bank of India)
b) Some card issuers offer variable interest rates for different periods. For example,.75% for the first 6 months and thereafter 1.49% for the remaining period till the repayment of the balance transferred amount. (E.g. BT facility offered by ICICI Bank)
c) Some establishments also offer reduced interest rates for lifetime. For example, balance transfer facility offered by Hong Kong & Shanghai Banking Corporation, India looks attractive at.99% interest for life-time on the balance-transferred amount.
Checklist for those opting for Balance Transfer:
1) A card holder should check and compare the various rates of interest (obviously discounted) offered by various establishments before opting for balance transfer.
2) S/he should also check the validity period of the discounted interest rate and the rate that would apply after the expiry of the pre-determined period.
3) Some establishments charge one-time processing fee for balance transfers. This may be a fixed amount or on percentage basis.
4) Some establishments put a maximum limit on the amount that can be transferred which usually will be a percentage of the maximum credit limit allowed on your account.
5) Last but not the least, after opting for a balance transfer the card holder should regularly check from his statement the interest calculation to very whether the correct balance transfer interests rates have been applied or not.
Other Articles
