How do 0% purchase cards work?

What is a 0% purchase credit card?

A 0% purchase card is a credit card that doesn't charge interest for a certain period of time. Usually, with a standard credit card, you'll have to pay interest on any balance you've not paid back within a month.

However, with a 0% purchase card, you won’t be charged interest on any purchase you make during the interest-free period. When the interest-free period ends, you will start to accrue interest on any outstanding balance you have on the card.

How long your interest-free period lasts depends on your credit history - the better your credit score, the longer the 0% period you can get. Typically, you can get an interest-free period of between 6 and 21 months.

How do 0% credit cards work?

0% purchase cards work like any other credit card, and you can use them to make purchases online or in person. They differ from other cards because they don’t charge you interest for a set period. 

It’s important to remember that the 0% offer only applies to purchases. If you use other credit card features, like withdrawing cash, transferring a balance, or using the card abroad, you'll be charged a fee and pay interest on any balances other than purchases.

One of the best reasons to use no-interest credit cards is to spread the cost of large purchases over the interest-free period, making your items more affordable while saving you money on interest.

Example of using a 0% purchase credit card

Here’s an example of how you could use a 0% purchase card:

1. You are approved for a card that offers 0% interest on purchases for 12 months 

2. You use the card to make purchases, e.g. you buy a new sofa worth £1,200 and a new fridge for £600, leaving a balance of £1,800

3. You work out how much you need to pay each month to clear the balance within the interest-free period - £1,800/12 = £150

4. You set up a direct debit to pay £150 each month to clear the balance before the end of the introductory period

In this example, you have spread the payment of two large purchases over a year without paying any interest. If you did this with a regular credit card, you'd have interest applied to the remaining balance each month, significantly increasing the overall cost of your purchases.

This is why 0% cards can be a cheaper way to borrow; however, don't let the interest-free period tempt you into overspending. If you cannot afford to clear the balance in time, you will start to accrue interest. 

How much does a 0% purchase credit card cost?

One of the biggest advantages of a 0% purchase card is that it could cost you nothing extra if you use it sensibly. However, there are several costs you may face, including:

• Interest if you don’t clear your balance by the end of the interest-free period

• Penalty fees for things like withdrawing cash or going over your credit limit

• An annual fee charged by some cards

When comparing 0% purchase cards, look at the interest rate it will revert to at the end of the interest-free period and any additional fees. This will help you find the best deal for you.

What happens when the interest-free period ends?

When your interest-free period expires, your card will start to charge you interest on any remaining balance unless you pay it off in full.

If you still have a balance you need to pay when your 0% period ends, you can use a balance transfer credit card to move the debt onto another card. Although you'll probably have to pay a balance transfer fee, doing this may be cheaper than paying interest.

Can I get a 0% purchase card with bad credit?

You may be able to get a 0% deal if you have a poor credit record, but you won’t be able to access the best offers and longest interest-free introductory periods.

Credit card providers reward those with good credit scores with the longest 0% deals. If you have a poor credit record, you may be only offered a very short no-interest period.

Most credit cards for bad credit also charge higher interest rates once the 0% offer runs out. That means it’s important that you pay off the balance in time, or you could incur a lot of expensive interest. 

If your credit score means you aren’t eligible for a 0% interest purchase card, you could consider getting a credit builder credit card. This type of card is designed to help you improve your credit score so you can access better deals in the future. 

What are the pros and cons of 0% purchase cards?

Pros

• Allows you to spread the cost of big purchases 

• These cards come with section 75 protection, which offers protection for purchases if they are faulty or didn't arrive

• They are widely accepted at most shops throughout the world 

• If used responsibly, it can help you build a good credit rating 

• You need to use a credit card for some purchases, including car rentals and certain hotels

Cons 

• They can be expensive once your interest-free period expires

• You don’t get a reminder when your 0% period is about to expire

• You need a good credit rating to be eligible for the best deals

• They can encourage overspending, so you need to be disciplined

• Some may come with an annual fee

• Most charge a fee for withdrawing cash or missing a payment

How to manage your 0% purchase credit card

Here are some tips on how to make the most of your 0% purchase card and ensure you don’t pay more interest than you need to:

• Pay off the balance:  Work out how much you need to pay each month to clear your balance by the end of the interest-free period and set up a direct deposit for this amount

• Know when the 0% ends: Card providers won’t warn you when your introductory period is coming to an end, so set a reminder at least a week before the end date to make sure you’ll have paid off the balance

• Consider a balance transfer: If you can’t clear the balance in time, apply for a balance transfer to move your debt to another 0% card, but bear in mind you will need to pay a fee of between 1 and 4% to do this

• Only use it for purchases: Avoid using your card for things like balance transfers or spending abroad as these could incur a fee and interest charges

• Don’t miss a payment: Missing or making a late payment could mean you lose your interest-free offer, you’re charged a penalty fee, and your credit score is affected