A Crash Course on Using a 0% Purchase Credit Card

Many Australian credit cards feature interest free days on purchases, which is a fixed period in which no interest is applied. The length of this period varies, but is often 55 days. Some credit cards also feature a special promotional offer with a 0% interest rate on purchases for an introductory period. The promotional period depends on the specific deal, but can be for as long as five or six months. This means you can use your credit card for purchases and pay no interest during the introductory offer.

Credit cards with zero per cent on purchases can be particularly useful if you want to finance a large, one-off purchase and repay the cost over the promotion’s fixed period. You need to be careful when you use a 0% purchase credit card – other types of transaction attract interest, and the purchase rate increases at the end of the promotion – but used correctly they can be a great way to make purchases and avoid paying interest.

Q: What features should I consider when comparing 0% purchase credit cards? A: There are several key features you need to examine when comparing and selecting a card. It is also important to look at your own finances and the way you manage your money to find the credit card that is best suited to you.

• The length of the introductory offer: This is an essential consideration when comparing any credit card. The longer the period, the easier it will be to repay the debt interest free.
• Standard purchase rate: When the promotion comes to an end the purchase rate reverts to a higher standard purchase rate. While the best plan is to clear the balance within the promotional period, it is possible you will still have a debt on your credit card when the offer expires. You may want to continue to use your card as a standard credit card after the promotion ends, so it is important to know how the deal changes and what interest rates apply.
• Annual fee: 0% purchase credit cards sometimes attract an annual fee. Although cards with a higher annual fee often feature attractive extras, you need to make sure the fee, or any other charges, doesn’t negate the savings you make on the promotional purchase rate.
• Other features and benefits: Apart from the introductory purchase rate, you should take the time to consider all the other features included in each credit card deal. Gold and platinum level credit cards with a 0% purchase rate offer other benefits such as rewards programs, concierge services and insurance. If you plan to use a credit card for a large purchase, a household item or a holiday for example, extra travel or purchase protection could be very helpful.
• Your budget: The best way to use a credit card with a promotional interest rate is to use it to make purchases and repay the amount before the introductory offer ends, so it is important to look at your finances and calculate how much you can realistically afford to repay. This will give you an idea of how much you can afford to spend on credit card purchases and how much you need to put aside each month to clear the balance.
• The terms and conditions: Before applying, carefully study the small print of the terms and conditions for any extra charges, how the deal changes when the introductory period ends, and any clauses and penalties that could cancel the offer.

Q: Does the promotional rate apply to all transactions? A: No. The 0% rate only applies to standard credit card purchases. Other transactions attract interest and could negate the savings you make on the promotional purchase rate. You should try to avoid using the credit card for cash advances, including ATM withdrawals, buying foreign currency and using you credit card for gambling. Relatively high interest rates are applied to these types of transaction, and they start accruing interest immediately. Once again, it is important to check the terms and conditions to familiarise yourself with exactly what payments are included in the introductory rate, what transactions are exempt and the relevant interest rates.

Q: How can I get the most out of the offer? A: The best start to getting the most out of your card is comparing all the deals and finding the one that definitely saves you the most money. Once you have your new card you need to be clear on what purchases you want to make, accurately budget how much you can spend and repay each month, and make every effort to clear the balance within the introductory period.

It is really important to keep up monthly payments, always paying more than the minimum required payment on your statement before the due date. Late or missed payments can result in penalties, even invalidating the offer that attracted you in the first place.

You need to be disciplined with you finances, avoid over spending and stay within your budget. You should also avoid using your card for cash advances and other transactions that attract high rates of interest.

This type of card is best used for financing short-term purchases so you can enjoy repaying the amount with no interest. If you can plan ahead and use your card wisely, a 0% purchase card can be a very beneficial financial tool.