Serena Cowdy evaluates the Virgin Money credit card.
This article was first sent to Fools as an 'Afternoon' email.
Here at The Fool, there are a few credit cards we've been banging on about this year.
One in particular - the Virgin Money card - stands out head and shoulders above the rest for its exceptionally long 0% balance transfer period.
If you're currently paying interest on credit card, loan or overdraft debt, this card could get you out of a tight financial spot and get rid of your interest payments for well over a year.
Sounds good, eh? My Foolish colleague Laura Starkey has even gone so far as to call it `the credit card of the year'.
However, several Fools have commented on aspects of the card that they feel are less impressive. Plus, I've actually got one of these cards - and I've had a few dodgy experiences with it myself.
So - is this piece of plastic as good as it's cracked up to be? Or is it, in fact, harbouring a host of nasty secrets?
Read on to find out!
The case for the defence
The longest 0% balance transfer deal around: In a nutshell, that's what the Virgin Money card offers. If you shift existing debts onto it, you'll pay no interest on them for a very juicy 16 months.
So for example, if you transfer debt on January 1st 2009, it will be interest-free until May 1st 2010!
You can transfer overdraft and loan debt too: Most credit cards' 0% deals only include the transfer of debt from other credit cards. The Virgin Money card, however, includes `money transfer' - the transfer of cash into your bank account - in its 0% deal.
So for example, if you've got an overdraft, you can effectively shift this debt onto the card and it will be interest-free for the same 16 month period as any transfers made from credit cards.
Six months 0% new purchases - with a special deal: The Virgin Money card also offers 0% interest on new purchases for six months. And unusually for a credit card, it won't automatically hit you with negative payment hierarchy if you do decide to spend on the card.
Within the six month period, any money you pay off on your card will be put towards reducing your purchases debt first, rather than your balance transfer debt.
This means that if you put new purchases on your card and pay them off within six months, you will avoid interest completely on those purchases.
A reasonable transfer fee: The Virgin Money card charges a transfer fee of 2.98%. I think that's reasonable for such a long balance transfer period.
You can set payments above the minimum: A couple of Fool readers recently flagged up the fact that you can no longer set an amount - above the minimum repayment level - to pay by direct debit every month.
In a nutshell, this is correct (the changes were made this autumn). However, you don't need to take proactive steps every time you want to make a payment above the minimum.
This is because you can still set up a standing order for the fixed monthly amount you'd like to pay.
The case for the prosecution
Negative payment hierarchy is the norm: It's important to remember that (excepting the special six month deal outlined above) the Virgin Money card does operate negative payment hierarchy.
This sneaky way of allocating payments means that any repayments you make go towards off any 0% debt first, while any purchase debt after the first six months remains on the card racking up high rates of interest.
High APRs at the end of the 0% period: The Virgin Money card advertises its typical APR as 16.6% (variable). This is over-simplistic: The only transactions that this APR applies to are card purchases.
If you transfer balances from other credit cards - or clear your overdraft with a `money transfer' - you face much heftier APRs on these debts if they remain after the 0% period. Here are the figures for each:
Card purchases | 16.6% p.a. (variable) |
Balance transfers | 18.6% p.a. (variable) |
Cheque transactions | 20.6% p.a. (variable) |
Money transfers | 20.6% p.a. (variable) |
Cash transactions | 27.9% p.a. (variable) |
PPI and ID protection pressure: When my application for the Virgin Money card was accepted, I was disappointed by the way in which customer service staff persistently and repeatedly tried to sell me both PPI and ID protection (despite my clear refusals).
Read Don't Be Bullied Into Buying This to find out more about my experience.
Text and email marketing: In the same vein, I have to put up with fairly persistent marketing and sales communications. I regularly receive both emails and (particularly annoying) texts, encouraging me to borrow even more on my plastic.
Virgin = MBNA: Finally, it's important to remember that your `Virgin' card will actually be issued by the mammoth MBNA group.
This means that if you have an existing MBNA credit card, you may not be accepted for the Virgin Money card. And even if you are, you'll be unable to transfer balances onto it from other cards operated by MBNA.
So, make sure you know who operates all your cards, so the whole process doesn't end up being a waste of your time and a stain on your credit record.
The verdict
It's clear that the Virgin Money card hasn't been invented just to do us all a favour.
I don't like the high APRs eventually levied on transferred debt and the pushy marketing and sales techniques I've come up against.
However, I do think that - for balance transfers - this is the best credit card currently on the market. The proof is in the eating, and personally, (having had it for six months) I don't regret choosing it as my one and only credit card.
Of course, the Virgin Money card is out to make a profit. If you miss a payment, use the card to withdraw cash or still have debt on the card when your 0% deal ends, you'll suffer.
If, on the other hand, you keep your spending under control, really understand all those terms and conditions and NEVER take your eye off the ball, you could use this card to good effect without it using you.