Wouldn’t it be great to put everything on your credit card without having to worry about interest? Of course, it would. So what’s the catch?
Credit cards with 0% interest rates are (not surprisingly) very popular. They can be a very cheap - or even free - way to borrow if used wisely. However, if you use your card incorrectly you may be paying a lot more than you had planned.
We look at how these offers work and what you should look out for in order to avoid any unexpected charges.
What are 0% interest credit card offers?
0% interest credit cards are cards that won't charge interest on your credit card balance for an introductory period (usually for the first 6 to 24 months) after you get your new card.
There are two main types of 0% credit card offers: 0% purchase offers and 0% balance transfer offers. In either case, the 0% offer only applies to a specific way of spending.
If you sign up for a 0% purchase credit card, the 0% offer will only apply, as the name suggests, to purchases (for example, buying petrol, paying for flights or buying something in a store). Cash withdrawals and balance transfers will normally still attract interest in the same way they would on any other credit card.
Similarly, 0% balance transfer offers usually only apply to balance transfers (when you use your credit card to pay off another credit card). Purchases and cash withdrawals may still attract interest if you don’t pay them in full when due.
What should you look out for when it comes to these types of cards?
Every credit card offer will be different, and you should go through your provider’s terms and conditions very carefully. However, broadly speaking, there are a few terms and conditions that normally apply to every 0% credit card offer.
The offer may be cancelled if you breach the terms
Credit cards with 0% interest offers come with the same responsibilities as any other credit card. In particular, you’ll still need to make at least the minimum repayment each month. If you don’t do this, your provider may cancel the offer and start charging you interest.
Your provider may also terminate the 0% offer period if you exceed your credit limit. As with any other credit card, your limit will depend on your individual circumstances, including your financial history and your credit score.
There's a chance you will still have to pay some fees and charges
While the balance on your card will not build up interest during the offer period, interest-free doesn’t necessarily mean fee-free. Indeed, most credit card providers still make money during the 0% offer period by charging various fees.
Fees and charges can include foreign transaction fees, ATM withdrawal fees, late payment charges and an annual usage fee. Many 0% balance transfer cards even charge fees on balance transfers themselves (called a 'handling fee').
Your credit card provider’s literature should include a schedule of all the fees and charges. It should also outline any circumstances in which the 0% offer will not apply. Read it carefully to avoid nasty surprises.
You should aim to pay off your balance in full before the offer ends
Any balance still outstanding after the offer period ends will attract interest, even though you made the purchase or transferred the balance during the promotional period. Your card’s APR (annual percentage rate) will depend on the provider and on your financial circumstances. However, 19% APR or even higher isn’t uncommon.
More importantly, your credit card provider doesn’t have to remind you that the promotional period is about to end. It’s your responsibility to monitor your balance and make sure you’ve paid it in full on time.
Of course, any purchase or balance transfer you make after the offer ends will attract interest at your provider’s usual APR, unless you pay it in full when it's due each month.
Making the most of 0% interest offers
0% interest offers can be a great way to keep costs down if you’re planning a big purchase, need to pay for an unforeseen expense, or even if you want to spread the cost of your holiday shopping. Similarly, using a 0% interest balance transfer offer can help you get your debt under control by consolidating it into one interest-free account.
However, you need to use your card the right way for this to be worthwhile.
Understand the terms
Don’t let an offer blind you to other risky conditions. You can - and should - shop around before you commit.
- What are the fees?
- How do the fees compare to those charged by other providers with similar offers?
- Are there any charges on things I’d use my card for? (for instance, paying in a foreign currency)
Most importantly, remember that the 0% interest offer will eventually expire, at which point you’ll start paying interest. The APR will be much higher on some cards than on others, so choose wisely.
Live within your means
The biggest attraction of 0% interest offers, and 0% purchase offers in particular, is that you can spread the cost of a purchase over several months without paying any interest. As a plus, some cards also have other perks, such as cashback or money off your food shop.
While this may make for an excellent deal, there’s also the danger that you might spend more than you can afford. Always make sure you’re in control of your spending, as exceeding your limit may end the offer and reflect badly on your credit score.
Stay on top of repayments
Always make sure you pay at least the minimum amount each month, or you may be charged a late payment fee and interest. Setting up a direct debit is a great way to stay on top of this, because the money is transferred automatically.
You should also pay off your debt - or, at least, as much of it as possible - during the period of the offer. Remember that any amount outstanding when the offer ends will attract interest.
Watch your credit score
Ultimately, the way you handle your credit card will have an impact on your credit score and which will, in turn, affect what credit cards you can apply for in the future. You can check your eligibility for certain credit cards before you apply in the 'Offers' section of your ClearScore account.
Staying on top of your debt and repaying it on time will keep your score healthy. This, in turn, means you’ll gain access to more credit, at more advantageous terms, in the future.