0% Purchase Credit Cards

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.

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.

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.

Any promotional interest-free period on purchases will begin on the day your card is approved, which may be several days earlier than the day on which you actually receive your card and are able to begin using it. So it’s important to make a note of the date on which your card application was approved. Then put a reminder in your paper or electronic diary, three, six, nine or twelve months ahead (depending on the length of your interest-free period), to alert you to the fact that your interest-free period is about to expire. In fact, make that diary note, and plan to pay off your purchase balance, a couple of days ahead of the expiry date, to allow for payment processing delays or the occurrence of non-banking days such as weekends. Suppose you had accumulated a purchase balance of $25,000 over 12 months. If you were three days late making the payment to clear the balance, at a revert rate of 20% you’d end up paying $41 in unnecessary interest, and you’d probably incur a late payment fee as well.

Yes. Even though you don’t have to pay any interest during the introductory interest-free period, it’s not a “spend and forget” card. You will still need to make the minimum repayment each month, usually an amount equivalent to 2% – 3% of your account balance. So if you made purchases to the value of $2,000 during the first month and the minimum repayment rate was 2.5%, you’d be required to make a repayment of at least $50 on the following ‘payment due date’ shown on your account statement. If you spent another $2,000 in the next month, your account balance would then be $3,950 ($2000 – $50 + $2000) and your next minimum repayment would be $98.75. In other words, the more you spend, the greater your minimum repayment will be, but you won’t make any significant reduction in the outstanding balance if you only make the minimum repayment each month. That’s why it’s important to set aside (preferably in an interest-earning bank account) enough cash to pay off your balance in full at the end of the interest-free period.

Omitting or forgetting or being late with the monthly minimum repayment could put your interest-free deal in jeopardy, possibly leading to its cancellation. It could also damage your credit rating. At the very least you may incur a sizeable late payment fee. So you must ensure that you make a minimum repayment each month. Your monthly account statement will explain exactly how much you have to pay and the date by which it must be paid. It’s best to diarise the payment due date (because it won’t necessarily be on the same date each month), and if you’re planning to use BPAY to transfer your payment from your bank account to your credit card you may need to allow at least one extra processing day, especially if you’re making an internet banking transaction in the evening or at the weekend. (Check with your bank for exact BPAY processing times.)

Yes. Making purchases in a foreign currency, such as hotel and restaurant bills, transport costs and souvenirs, does not count as buying foreign currency. You will not be charged any interest on this kind of transaction during the promotional interest-free period. But buying foreign currency (e.g. banknotes) to spend while you are on an overseas holiday is regarded as a cash advance, not a purchase, and you will pay the normal (usually very high) cash advance interest rate, charged from the very day on which you buy the currency. So, to make the most of your 0% purchase card while you are on holiday overseas, keep your cash purchases to a minimum to avoid having to replenish your supply of foreign currency banknotes. Use your 0% purchase card to make payments instead, whenever you can, and then pay off the balance before the end of the interest-free period. Note that if you are paying in a foreign currency, you will be charged a foreign exchange fee, which is typically 3% of the purchase amount.

Once the introductory interest period has expired, any unpaid balance on your credit card account immediately begins to attract the ‘revert’ rate of interest. This simply means that the honeymoon is over, and you now have to pay the (usually hefty) rate of credit card interest. You should note that some will revert to the purchase rate and others will revert to the higher cash advance rate. If you don’t plan to pay off your balance in full at the end of the promotional period, read the small print to make sure you understand the interest rate you will be paying.

Not necessarily. If you know that you will have no problems paying off your purchase balance at the end of the interest-free period, the cash advantage you will gain lies only in the interest you can earn by leaving your money in the bank instead of using it to make credit card repayments.

Let’s say you accumulated a purchase balance of $20,000 over 12 months. Your average balance would be roughly $10,000, which means that at a savings account interest rate of 3% you would earn $300 by postponing your repayments for 12 months. But there might be a competing card offering only six months at 0%, letting you earn only half as much in interest – $150 – but with other money-saving benefits attached in the form of rewards program points plus a range of insurance cover worth over $500 every year.

Calculate the best deal by working out the dollar value of any benefits you would use, including the 0% purchase option. The card with the highest dollar value of combined earnings (from cash on deposit rather than lost in repayments) and savings (from complimentary benefits) will probably get your vote.

Probably only slightly, and only temporarily. A company called Veda is the main provider of credit ratings in Australia, and their list of data used (in calculating an individual’s credit score) is topped by payment defaults. Next comes the number of credit enquiries lenders make about you, and then the number and type of credit enquiries and requests for credit you make yourself. So, while the size of the credit you apply for may have an impact on your rating in the short term, any substantial credit you actually use and repay within the agreed conditions is more likely to improve your score in the long term.

There are a few key things to do in order to make the most of the promotional offer.

• Plan ahead: 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.
• Stay up to date: 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.
• Be disciplined: You need to be disciplined with your 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 as these higher rates will usually be high enough to negate any savings made.