Money Insider: Longer isn't always better on credit cards

The battle between credit card companies striving to offer the longest zero per cent term for balance transfers shows no sign of tailing off, as another high-profile deal has just been launched.

This week Tesco Bank kept the pressure on Barclaycard, MBNA, Santander and Halifax, as it increased the term of its zero per cent balance transfer deal to 32 months, just one month shy of the market leading deal.

If you are financially disciplined, there are some good savings to be made, but recent separate reports from Zopa and NatWest both highlighted the potential financial costs if these cards aren't managed properly. Both also revealed that many people fall off the zero per cent wagon mid-term and end up incurring significant interest charges.

But if you're careful you can make a substantial cost saving.For example, if you borrowed £3,000 interest-free with the latest long term Barclaycard offer, your only cost would be the £89.70 (2.99 per cent) balance transfer fee. If you paid £93.62 per month for 33 months, the balance and fee will be cleared with no interest charges to pay.

But if you wanted to clear a £3,000 balance on a card at the market average of 17.4 per cent APR in 33 months, you'd have to pay £114 per month, £672 more expensive over the full term than the zero per cent deal above.

Just because lenders appear to be tripping over themselves to offer longer term interest-free deals it doesn't mean they are easier to get hold of.

You will need a near perfect record to get the best deals and if yours doesn't meet the criteria you may be offered a shorter zero per cent deal, possibly a higher interest rate and also a fairly small credit limit – while others will find their applications declined.

If you are accepted for one of these products, make sure you don't exceed your limit or miss a monthly payment, as the lenders use this as a handy get-out clause to terminate the deal on the spot.

Another tip for savvy borrowers is don't blindly opt for the card with the longest interest-free period unless you intend on using it for the full term.

It's not uncommon for customers to switch to zero per cent and then switch away again or repay the balance well before expiry, so for many people the balance transfer fee is also a key area they should consider if they want to keep costs to a minimum.

The one-off balance transfer fee is much cheaper if you opt for a term which is slightly shorter than the table topping cards: by picking the Post Office 0% Card at 18 months, the balance transfer fee is currently just 0.7 per cent, or with the MBNA Everyday Card at 21 months at 1.5 per cent, both well below the 2.99 per cent charged by Barclaycard on its 33-month card.

If you're someone who knows you can repay over a much shorter timescale, perhaps from an annual bonus, then the Sainsbury's bank Nectar card and Fluid Low Fee credit card both offer one year interest-free with a balance transfer fee of just 0.50 per cent.

Only three years ago it was extremely rare to find an interest-free balance transfer card with a term of 18 months or more, but the desire by the biggest credit card companies to acquire more customers has seen the length of these deals increase almost on a monthly basis.

When zero per cent balance transfer deals hit 30 months, some experts predicted that was as far as they'd go, but with so much competition for the prized "best buy" slots on the league tables, I wouldn't be surprised to see a three-year term on an interest-free card before the year is out.

Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk