Pay 0% interest on purchases and balance transfers with these credit cards.
When you are shopping around for a new credit card you will have noticed that many of them feature introductory offers, including 0% balance transfer and purchase rates for an initial period. With credit cards that combine these introductory rates the period that the 0% rates are valid for often varies, but is typically between six months and a year.
This type of credit card can seem very attractive, and is a good way for banks to entice new customers, but you should be aware of how they work and, importantly, how the package changes when the introductory offer comes to an end.
Used wisely, 0% balance transfer and purchase rate credit cards provide an opportunity to make purchases, reduce your debts and save some money.
0% purchase rate: A 0% purchase rate for a few months or up to a year gives you a window of opportunity to make purchases and repay with no interest before the introductory period ends. Typically, you have a few months of interest-free credit card purchases, and when the introductory offer ends the rate reverts to the credit card’s standard purchase rate, so any unpaid balance starts attracting interest at this rate. A 0% purchase rate deal can be very useful if you plan to make a one-off larger purchase, or set of purchases, and repay within the introductory period. In this way the deal can be treated as a cheap way to borrow money – if you clear the balance before the 0% purchase rate expires you have made a short-term interest-free loan.
0% balance transfer rate: A balance transfer is a feature that allows you to move an unpaid balance from an existing credit card to a new card from a different card provider and repay with less interest than you were previously paying. 0% purchase rate credit cards provide a window of opportunity, typically six months to year, to repay the balance with no interest. When the balance transfer period ends any unpaid balance usually starts attracting interest at the credit card’s standard purchase rate. If you do manage to clear the entire balance that you transferred from your previous credit card you will have paid the debt and minimised the expense of interest, potentially saving yourself lots of money.
Credit cards often work best when they are used for a specific purpose – borrowing a short-term loan for a purchase, clearing a debt with a balance transfer or earning points by spending on a rewards program, for example. 0% balance transfer and purchase rate credit cards provide a way to use two special features in tandem – clearing your previous credit card balance and continuing to spend with no interest on your purchases. Using both features at once does require responsibility and discipline, avoiding overspending and focussing on clearing the balance in full before the rates revert to a higher level.
When you are comparing and selecting a new 0% balance transfer and purchase rate credit card it is important to consider the other features apart from the introductory offers. Look out for annual fees, which if too high can negate the savings on the other low rates, and other features such as rewards programs and insurance policies. You should also be wary of cash advance rates and fees as these transactions often attract high rates of interest and the interest is applied straightaway, eating into the other savings.
When you are using a 0% balance transfer and purchase rate credit card it is crucial to be disciplined, try to make the most of the introductory offers, not overspend and keep your account in good order. While you should plan to pay off as much of the balance in full each month, it is very important that you meet at least the minimum payment due on each statement. If you miss payments the 0% rate could be revoked and you will have to start paying interest on your balance, which could be a nasty shock if you thought you had several months to clear the debt.
A 0% balance transfer and purchase rate credit card could be the right choice for you if:
Long introductory offers: Look for a package that has long terms on both the 0% balance transfer and purchase rate promotions, giving you the most time to clear you balance and use your card interest-free.
The difference between the 0% balance transfer and purchase rate terms: Ideally, your credit card should have long terms on both 0% balance transfers and purchase rates, but some cards have different periods of time for each feature. If there is a difference in the terms, consider which feature is most important to you and suits the way you plan to use your card. If you want to make a balance transfer and clear the debt look for one that offers a long balance transfer period. If you want to make a large purchase make sure the 0% purchase rate lasts as long as possible.
Annual fees: High annual fees can negate the savings you make on introductory offers, so it is best to look for a deal that has no or a very small yearly charge. Annual fees often pay for extras such as rewards programs and insurance policies – if you are paying an annual fee make sure it is for extra features you really need and can make use of.
The standard interest rates: When the 0% balance transfer and purchase rate promotions expire any unpaid balance starts attracting interest, generally at the credit card’s standard purchase rate but sometimes at the cash advance rate. For this reason it is crucial to examine how the deal changes and what rates you will be paying if you do not clear your balance in full. You may also want to continue using the credit card after the introductory rates expire, so it is important to understand how much normal usage costs.
Other features: When you have found a credit card deal you like the look of, it is important to read through the terms and conditions before applying. Look out for all the fees and charges, cash advances, minimum monthly repayment amounts, insurance policies, rules and regulations and everything else to ensure the credit card is right for you.
Apply for the balance transfer when you apply for the credit card: If you plan to make use of the balance transfer option, apply for and start using it as quickly as possible. Many online credit card application forms contain a section asking if you require a balance transfer – complete this part, transfer the balance and start repaying with no interest sooner rather than later.
Make the most of the 0% interest periods: Start using the 0% balance transfer and purchase rates immediately, repaying the debt from your previous card and paying for the purchases you plan to make. This gives you the maximum time to clear the balance before the interest-free periods end.
Don’t overspend: Just because your credit card features a 0% purchase rate doesn’t mean you can overspend. Only purchase the items within your spending plan and aim to pay for these before the promotion ends. If you do use your credit card for everyday spending, stay within your normal expenditure and budget to repay what you spend at the end of the month.
Budget to clear the balance within the 0% rate term: The benefit of 0% balance transfer and purchase credit cards is the opportunity to pay an existing credit card debt and borrow money for purchases interest-free. Make an accurate budget so you know exactly how much you need to repay each month in order to clear the balance. Even if you have to make cuts in other parts of your domestic budget for during the months when you are repaying, paying off your debt with no interest can save a lot of money in the long run.
Always pay the minimum payment due: While you should aim to pay off your balance by making large monthly repayments, it is essential that you pay at least the minimum payment due each month. If you miss payments you could lose the 0% interest rate, start repaying with interest and find yourself back where you started. If possible, you should set up a direct debit from a transaction account to cover the minimum payment – this way you know you’re not going to default and can concentrate on clearing the rest of the balance.
Keep your account in good order: In addition to paying the minimum monthly payments, there may be other stipulations such as not exceeding the agreed credit limit or using certain transactions that could result in the removal of the 0% introductory rates. Study the terms and conditions and make sure you always adhere to these rules when using a credit card.
What happens when the introductory offer expires?