What is an interest-free credit card?
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
25th October 2021
3 minute read
A 0% interest credit card gives you an introductory period where you can borrow money and not pay any interest at all.
This is a worthwhile offer for organised spenders who can pay off their balance in time, but if you don’t keep track of your credit card, you might end up paying interest after all once this interest-free period ends.
If you have come across these offers and would like to know more, we’ve put together a short guide to explain a little more about what you can expect when taking out a 0 percent interest credit card, and how to find the best 0% interest credit card for you.
How does a 0% interest credit card work?
A 0% interest credit card works by offering a promotional period where you will not have to pay interest on top of any balance transfers or purchases you make (depending on the type of credit card you choose).
So, providing there are no other credit card fees and charges associated with your spending, you won’t pay extra for using your card, as long as you can pay off the full balance before the introductory period ends.
However, if you fail to keep up with repayments, you’ll end up with unwanted penalty fees and you could lose your introductory rate. This means you’ll have to pay the full APR on the remaining credit card balance.
Read more about understanding interest rates and repricing here.
The two main types of interest-free credit card are:
0% Balance Transfer card
This type of credit card allows you to transfer a balance from another card, loan overdraft or otherwise, and you won’t have to pay any further interest on the debt for the time agreed. This can help you consolidate multiple debts and pay them off at once, while stopping the debt increasing with further interest payments.
0% Purchase card
This type of card will allow you to make purchases for the time period agreed, and as long as you meet the minimum payment every month, you won’t pay any interest
You can also get credit cards that will perform both functions, though the best 0% interest credit cards are usually reserved for those with a good credit rating. Always make sure to check your credit score before you apply.
How do I avoid paying interest on a 0% credit card?
While the offer of paying no interest on a credit card is always tempting, this is all based on sensible borrowing and ensuring that you never miss a monthly repayment. If you’re late in paying off your balance or are unable to pay it, you’ll quickly find that you will have to start paying interest.
To make sure you don’t pay any interest, make sure you stick to the following rules of a 0% credit card:
- Always make the minimum monthly payment – to make sure you retain your 0% interest period you will always have to make the minimum payment each month. Setting up a direct debit will ensure you won’t miss the payment. Ideally, you’ll want to overpay, just to make sure you can pay off the entire amount within the time given
- Budget so you can pay off the balance within the time given – if you have a 24-month purchase card and you are still using the card in month 25, you’ll end up paying interest on the remaining amount
- Spend within your means – if you ending up spending too much and don’t have enough time to pay it off, you’ll end up paying interest on the remaining balance after your 0% period. Just because you have a large credit limit, it doesn’t mean you need to spend it all of it!
- Don’t withdraw cash – withdrawing cash usually accumulates a fee you will have to pay so try and stick to spending on the card (if it’s a purchase card that is)
- Always check the summary box document – there will usually be other scenarios where you might have to pay interest or pay a penalty fee. Check your summary box document to avoid paying anything extra on top of your standard repayments
What do I do if I can’t pay off the balance in time?
You should always aim to push that balance back down to zero. However, if you’re nearing the end of your interest-free period and you’re unable to clear it fully, it’s wise to look around for a balance transfer option at a lower interest rate to see if it could work out cheaper for you.
Those who want to reap the benefits of interest-free fully will set up a direct debit to pay their calculated fix sum off their card each month, guaranteeing that they reach their goal.
Compare 0% interest credit cards
The most attractive interest-free credit card deals are naturally reserved for those with great credit scores. This means that if you have a low credit rating, you’re likely to be rejected. Before applying for any credit card, always do the following two things first:
- Check your credit score – have a look at your credit report to find out if there might be anything lowering your credit score. If you’d like to improve your score, take steps to improve it using this guide
- Check your eligibility – use our free moneymatcher comparison tool to find the best 0% credit card for you
Once you’re happy with your credit score and eligibility, you can start browsing for a 0% balance transfer card or a 0% purchase card. Good luck!