We look at the finer details of 0% interest credit cards.
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 are very popular. But just like any other financial promotion, they come with terms and conditions. It can be all too easy to forget this when you’re dazzled by the prospect of interest-free spending for half a year or more.
However, ignore the terms at your own peril. Use your card incorrectly, and you may be in for a whole load of trouble down the line.
Before you do anything you might regret later, here’s what you need to know.
What are 0% interest credit card offers?
0% interest credit card offers come with a promotional period, during which you won’t accrue any interest on your balance. They’re usually introductory offers; and they typically apply during the first 6 to 24 months after you get your new card.
When you use a credit card, you get a monthly statement that usually comes with added interest on top. Not so with 0% credit card offers. In this case, your credit card provider won’t charge any interest for the duration of the offer, which allows you to repay your balance interest-free over a longer period.
Common 0% offer terms and conditions
Every 0% offer is different; and you should go through your provider’s terms and conditions very carefully. However, broadly speaking, here are a few terms and conditions that normally apply to every 0% credit card offer.
The 0% APR only applies for particular spends
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. 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 (using 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.
Fees and charges
While the balance on your card will not accrue 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 levying 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.
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.
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, your provider may cancel the offer and start charging you interest.
Your provider may also terminate the offer 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.
You should aim to pay off your balance in full before the offer ends
Any balance still outstanding after the offer 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 of interest) 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 large 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 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 groceries.
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.