If you want to buy something using a credit card that you won’t be able to pay off in full when your credit card statement comes through, you should use a 0% purchase credit card. This way you won’t pay any interest on your spending for a number of months, with the most competitive deals lasting between 15 to 18 months.
If used sensibly, a 0% purchase card can be a useful and cheap way of borrowing – especially if you have a big purchase in mind, such as a new sofa or summer holiday.
A few interest-free purchase cards also allow you to earn cashback on your spending or reward points that can be spent in certain stores or put towards days out. But while there’s no harm using these incentives to your advantage, you shouldn’t be tempted to spend more than you would have done otherwise. There’s no point racking up a huge amount of debt you’ll struggle to pay off just because you get extra reward points for your favourite store.
Credit card lenders are quite strict about whom they lend to and unfortunately you aren’t guaranteed to get advertised rates. Some of the best deals, such as the longest 0% interest periods with cashback, are reserved for those with the best credit ratings.
If you find your credit rating isn’t as good as it could be, you may not get the credit card deal that you had hoped for. There are simple ways you can improve your credit profile in the eyes of lenders though, such as making sure you pay bills on time and paying off the full amount borrowed. You can read more about this on our page on credit scoring.
Because you aren’t charged any interest on a 0% purchase card for several months, using one can be far cheaper than dipping into your overdraft or resorting to short-term loans such as payday loans. They can therefore be useful in the case of planned big purchases you can’t afford to pay back immediately, or even as an everyday card you won’t pay off in full.
You should always think carefully about the way you plan to borrow on a 0% card before spending. The end of the interest-free period can sneak up fast, and your credit card provider is no doubt hoping the interest-free offering will make you more relaxed with your spending.
The average credit card rate now stands at of 17.32%, so if you have to pay interest, your purchases could work out to be much more costly than you first thought. If you have a particular purchase in mind, work out how long it should take for you to pay it back and make sure it won’t be longer than your interest-free period.
Never miss a payment
It’s a good idea to set up a direct debit to pay off at least the minimum payment each month (more if you can) because if you miss a payment your lender could withdraw your 0% deal immediately. Missed payments also have a negative effect on your credit rating.
If you think that you’ll need longer than the interest-free period to pay off your debt, it could be better in the long-run to get a personal loan. While there are no interest-free periods on loans, average interest rates are much lower – some of the best on the market have rates as low as 6%. One of the benefits of borrowing on a credit card is that you tend to have more flexibility with paying off debt; if you have extra money one month you can use it to pay off your balance. Loans tend to be less flexible in this sense, and you could find you are charged if you repay early, so make sure you check the terms before signing up.
After the interest-free period is over, you shouldn’t use a 0% purchase card for spending unless you can pay off the full amount each month. If you still have debt left on your card when interest starts being charged, consider moving it to a 0% balance transfer card. These cards don’t charge interest on balances moved over from other credit cards for a set period of time. It’s better to try and get the debt cleared though as balance transfer cards charge a percentage fee of the outstanding balance, which is then added to your debt. This is usually around 3% so if you transferred a balance of £1,000 you’d pay £30.
It’s also not great to get in the habit of constantly moving old debt from one interest-free deal to another. Not only do you have to keep paying a fee, but you’re also assuming that you will qualify for a 0% interest card each time, if you don’t you will suddenly be left paying interest. You have to pay off your debt at some point: it’s better to do it sooner rather than later.
If you spend £1,200 on a 0% purchases card offering an interest-free period for 12 months, you’ll need to pay £100 a month to pay off your balance in full before interest kicks in. This is providing you don’t spend further on it.