A 0% purchases card is a credit card that doesn't charge any interest on your spending for a certain amount of time. This no-interest promotional period can last anywhere from one month up to 30 months. 0% purchases cards can be useful for spreading the cost of a big, upcoming purchase over the length of this intro period.
Table of Contents
- How a 0% Purchases Card Works
- How Much Can a 0% Purchases Card Save Me?
- Purchases Card with Balance Transfer
How a 0% Purchases Card Works
With a 0% purchases card, you will not owe any interest charges on new purchases for the duration of the promotional period. Promotional periods on 0% purchases cards last anywhere from one month up to 28, 29 or 30 months on 0% purchases cards. Once the promotional period is over, the bank will start charging your standard interest rate on any remaining balances.
Be aware that you must pay your minimum monthly payment on time each and every month if you want to keep your 0% interest rate. Failure to pay the minimum on time each month usually means you lose your promotional offers and the credit card will start charging you the standard interest rate. When applying for a new purchases card, be sure to check not just the promotional period (i.e., months of 0% interest) but also the standard interest rate, as they can be high and quite variable, as you can see from a selection of cards in the following table.
|Credit Card||Minimum Purchases Interest Rate (variable)||Maximum Purchases Interest Rate (variable)|
A 0% interest card does not mean £0 payments. Each month, you will still be required to pay at least the minimum monthly payment due on your account. Minimum payments are usually around 1% of the balance + interest charges + default charges + annual fees (whether charged once a year or monthly), but there may be a minimum pound value imposed, such as a minimum of £5, or the full balance if that balance is less than £25, etc. The good news is that none of your payments during the promotional period on a purchases card are lost to interest charges, but instead go directly to reducing your outstanding balance.
How Much Can a 0% Purchases Card Save Me?
A 0% interest credit card can save cardholders a significant amount of money in avoided interest payments. The higher the interest rates on your existing cards, the more potential there is for saving. It's easiest to understand this by way of an example. Let's say you will be spending £1,000 on charges related to house renovations that you would prefer to pay off slowly over two years - you just don't have extra cash in hand right now, but you can afford £50 payments each month. Your options are charging this £1,000 in renovation costs to your existing 18.9% credit card OR opening a new 0% purchases card.
Option 1: 18.9% card: Charge £1,000 to a 18.9% card, paying back £50 per month (more than the minimum payment) - this will cost you £188 in interest charges and take 24 months to pay down the balance.
Option 2: 0% purchases card: Charge £1,000 to a 0% card with a promotional period lasting at least 20 months, paying back £50 per month (more than the minimum payment) - this will cost you £0 in interest charges and take 20 months to pay down the balance.
Using a 0% purchases card, not only would you save £188 in interest charges but you would be debt free four month sooner. Make sure you understand how your outstanding balance, the size of your monthly payments, and the length of the promotional period affect the outcome. Ideally, you have paid down your balances by the end of the promotional period.
In the example above, paying £50 per month on a £1,000 balance would leave you debt free in 20 months. Here's the math: £1,000 ÷ £50 per month = 20 months. In this case, look for a 0% purchases card with a promotional period lasting at least 20 months. The savings you can make on a purchases card are even more pronounced the higher the interest rate on your current credit card, as you can see in the chart below.
Purchases Cards with Balance Transfers
Purchase cards often offer balance transfer capability as an added feature for those need help managing existing debt, but balance transfers can be expensive this way. Cards with long 0% interest periods for both purchases and balance transfers are often referred to as "dual" or "all around" offers. It can be handy to have both functions on just one credit card, but you will usually pay a higher balance transfer fee on a dual card than you would on a balance transfer card. You can see this illustrated in the following table of two Virgin Money cards.
|Credit Card||Balance Transfer Promotional Period||Purchases Promotional Period||Initial Balance Transfer Fee|
|Virgin Money 24 Months at 0%||24 months||3 months||0%|
|Virgin Money 25 Months at 0%||25 months||25 months||1.5%|
The 0% promotional period on balance transfers is nearly identical, at 24 and 25 months. Where they differ is the length of 0% promotional period for purchases - 3 months vs. 25 months. The card with the longer purchases period carries a significantly higher fee for balance transfers - this is essentially the cost of combining both balance transfer and purchase functionality on one card. If you want one card for everything, it's important to understand how the balance transfer fees are affected. Putting a balance transfer on a long purchases card is more expensive than putting a balance transfer on a short purchases card. Choosing the best card for you will depend on your individual financial situation.