What is a 0% Purchase Credit Card?
When you borrow money, you pay lenders a percentage fee called interest. In the case of credit cards this interest is calculated on a monthly basis using the card’s APR in relation to your outstanding balance.
So, what if the interest rate is set at zero? With a 0% purchase credit card you don’t pay any interest on your borrowing for an agreed period of time. You spend on your card without accumulating interest, though you still need to make at least your minimum payment every month. At the end of the agreed period you’ll move onto a much less attractive APR.
Getting the best from a 0% purchase card requires planning, discipline and understanding. If you’d like to tick all those boxes and use this type of card to your advantage, tune in, for today we’re delving deep to reveal how you can borrow for ‘free’....
How do 0% purchase credit cards work?
If you’re planning a wedding or house renovation, booking the holiday of a lifetime or have an expensive insurance policy you’d like to spread the cost of without paying interest, a 0% purchase credit card can be the cheapest way to borrow. Zero interest periods range from a few months up to several years, so they’re a great way to pay for expensive things up front when you don’t have the cash saved up.
These cards work best when you plan carefully, so you don’t need to pay any interest on your borrowing at all. To retain your interest free period you’ll need to pay at least your minimum payment on time every month and not exceed your credit limit.
Clearing your card balance before the usually much higher rate of interest kicks in is done by dividing your balance between the number of months left on the special rate, so you effectively treat the card like a fixed payment personal loan.
If you’re looking ahead to married bliss, you could book your wedding venue in advance and have it paid off before you say ‘I do’. As a bonus, you’ll get some consumer protection via Section 75 of the Consumer Credit Act. This is for any purchases worth between £100 and £30,000, even if you’ve only paid a deposit on your card. That means you need only pay part of the cost on your card and you’ll still be covered by the Consumer Credit Act, even if the majority of the payment is made by cash or other means.
Things to avoid
Restraint is most definitely required with these cards. They should never be used for withdrawing money or purchasing things like foreign currency, where there’s a high fee attached. It’s also important not to use them for everyday spending.
Used to fund special projects or purchases with a clear budget and payment plan worked out and stuck to, they can save you a lot of money. But if you start spending money you can’t pay back in the time period, you could be left with an expensive debt. The lesson here is not to be tempted to buy things you don’t need just because you don’t have to pay for them right now! If you’re not confident you can clear the balance within the time period, you may be better off taking a personal loan or a low interest credit card as when higher rates kick in, interest can grow debts quickly.
Compare 0% purchase credit cards
Comparing APRs is often the first thing you do when you borrow but when you’re looking for a 0% purchase deal there are other things you need to be looking out for. Many of these deals are advertised as being available for ‘up to’ X number of months.
So, just as you won’t always secure the headline rate for loans or cards, if you do manage to secure a 0% purchase card you may not be given the full 0% period advertised. Indeed, with some lenders you may be offered a slightly different interest rate too. Some cards may require you to start spending on the card within a certain period from setup. Others may have an annual fee, though you’re still likely to save a substantial amount depending on your overall spend.
Other incentives may also be offered alongside your zero interest purchase period, from 0% on balance transfers through to cashback for spending or no transaction fees overseas. Compare these finer points to find a card that suits how you intend to use it.
To give you a head start without hurting your credit score, our MoneyMatcher conjures up deals tailored to your requirements and breaks down features, fees and other important information so you can make an informed choice about which card you’d like to apply for.