What is Balance Transfer (BT) and How It Works in Singapore
TL;DR
- Balance Transfer (BT): A short-term cash facility from local banks in Singapore allows you to borrow money with 0% interest for 3–12 months.
- Processing Fee: Typically, 1-1.5% of the transfer amount is charged as a one-time fee with the first payment.
- Repayment Flexibility: Until the end of the tenure, only minimum payments (around 1% of the outstanding balance) are required.
- Potential Risk: Failure to pay off the balance within the tenure can result in high interest (up to 25%) on the remaining balance.
- Application Options: You can apply via bank app, by phone, or through new credit card sign-ups, which often offer lower fees.
- Pro Tip: Negotiate for a lower processing fee, especially if the bank contacts you with a BT offer.
- Referral Codes: Consider using my referral code to sign up for SCB (95CE9) or Citi (s7522591411F) for additional perks.
Managing personal finances can be challenging, especially in a country with a relatively high cost of living. There are months when we might rely heavily on credit cards for unavoidable expenses, sometimes spending beyond what we can afford and covering only the minimum payment (e.g., spending $10,000 but paying just $1,500). This leaves us with a hefty balance ($10,000 – $1,500 = $8,500) that accrues double-digit interest. A Balance Transfer, often referred to as BT, can be an effective tool for managing such situations. In this article, we’ll dive into what a balance transfer is, how it works in Singapore, and how it differs from a traditional loan.
A balance transfer (BT) is a cash facility offered by many banks in Singapore, including DBS, Citi, Standard Chartered, and HSBC. It is designed for short-term use, typically between 3 and 12 months. The key advantage of a BT is its 0% interest rate, making it an attractive option for managing debt and short-term money requirements. However, nearly all banks charge a one-time processing fee due with the first repayment. BT also offers flexible repayment options, which we’ll explore further in this article.
Eligibility Requirements
- You need a credit card from a local bank in SG which offers BT.
- Also, the credit limit of the credit card should not be exceeded.
How to Apply for a Balance Transfer
Applying for a Balance Transfer (BT) in Singapore is straightforward, and there are a few options available:
- Apply via the Bank’s App: Most banks offer the convenience of applying directly through their mobile app. It’s quick and easy, allowing you to complete the application in just a few taps.
- Call the Bank: If you prefer speaking to someone or want a more personalized experience, you can call the bank and apply with an officer’s help. This is also a great opportunity to negotiate for a better rate, as you’ll be directly interacting with a representative.
- Wait for the Bank to Contact You: Sometimes, banks proactively reach out to offer BT promotions. When a bank calls to offer a BT, it often gives you extra negotiating power. Feel free to ask if they can lower the processing fee or provide additional perks.
- Sign Up for a New Credit Card: Many banks offer special BT promotions for new credit card sign-ups. As a new customer, you may enjoy a lower processing fee, often around 0.6%, for a one-time BT. This option can be cost-effective if you’re open to getting a new card.
How Much Can You Borrow?
- Most banks allow you to transfer 95% of your available limit as a balance transfer.
- For example, if your credit card is new and your limit is $10,000, you can transfer $9500.
Processing Fees
- Almost all the local banks in SG charge a one-time processing fee.
- Based on my experience, I never paid more than 1.5% for a six-month tenure, which led to 3% per annum. Most of the time, I got it for 1%.
- If the processing fee is 1.5%, and you took $9,500, you must pay only $142.50 for the extra amount.
- This means that at the end of 6 months, you have paid $9,642.50 in total. ($9,500 capital + $142.50 processing fee)
- Pro Tip: You can always ask for a better rate. I did this, and most of my efforts were successful.
Tenure
- The most famous one is the 6-month BT, but the tenure can vary from 3 to 12 months.
difference between a normal loan and a BT
- The biggest difference is the repayment flexibility.
Repayment Terms
- Unlike normal loans, you do not want to pay fixed instalments every month.
- You just need to pay the minimum payment (assume you are not using the credit card for your other expenses) till the 5th month, and you can pay the remaining outstanding on the 6th (last) month.
- You must pay the processing fee and the minimum amount in the first month.
- Mostly, the minimum amount is 1% of the outstanding balance.
- If the outstanding balance is $9500, the minimum payment is around $95. Please check the statement to confirm.
Advantages
- No interest during the tenure
- Relatively low processing fee
- Repayment flexibility
- Quick processing time (some banks process within minutes)
Disadvantages
- If you cannot close the BT within the tenure (i.e. 6 months), the bank will charge around 25% interest for the remaining balance. This is the biggest risk.
Use Cases
Not A financial advice
- If you know any investment that gives you a higher return than the BT process fee, you can try it.
- For example, you are confident with an investment that confirms an 8% return. In this case, you can take a BT with 1 year tenure, which may charge you a 3% processing fee. Then, invest that money in the investment. Pay the minimum amount for 11 months. Then, after your investment is mature, take the full amount and pay the balance of BT. This returns you 5% (investment return 8% – processing fee 3%)
- Please note that the above is just an example. Please do not take it as financial advice. You are making such a decision at your own risk.
My Referral Codes
If you plan to apply for a BT, consider signing up using my referral code. TIA
Standard Chartered
Sign up for Standard Chartered products with my referral code (95CE9) for you to get up to $560 worth of rewards or 45,000 miles!
Here is how:
- Visit the SC Singapore (SG) website
- Click on “Referral Sign Up” located on the homepage or navigation menu
- Key in my referral code when applying for a product: 95CE9
Citi Bank
Sign up for Citi products with my referral code (s7522591411F)
Here is how:
- Visit the Citi Singapore (SG) website
- Click on “Credit Card Referral Program“
- Key in my referral code when applying for a product: s7522591411F
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