Credit cards can be incredibly useful products for making payments when a person does not yet have the means of doing so, but they can be expensive in the long term due to interest charges. Interest free credit cards help by offering periods of no interest charges: this can make monthly repayments – or even paying the debt off completely – that much easier.
What are Interest Free Credit Cards?
There are usually two instances when a borrower will not have to pay interest on their card balance – when initially taking out a credit card, and for a set term after receiving their monthly credit card statements. Depending on the card, the initial interest free period will apply to either balance transfers or new purchases, or in the case of the best interest free credit cards both.
An interest free credit card is generally offered for a period of time when applicants first obtain their credit cards, or when they perform one or more balance transfers from other cards. Interest free terms are usually between 3 to 12 months (though for borrowers with a good credit rating longer terms are often available), and will be of real assistance to those who need to pay off any outstanding balance from their old credit card if they have switched. New credit card customers in particular are targeted by banks and building societies by being offered lengthy 0% interest credit card terms. This enables them to make big purchases without paying any interest for an introductory period. Greater than 12 months interest free credit cards, for example, are increasingly being offered by companies to persuade people to sign up to their cards.
After the Interest Free Term Ends
After this introductory term, a standard zero percent credit card term will apply, whereby any debts incurred will need repaying usually within 56 days (though the precise period should be checked as some lenders offer less time). If a statement isn’t paid off in full in this period, interest will be charged from the day of each transaction until a repayment is made.
Though these interest free credit card deals sound too good to be missed, they won’t be suitable for everyone. Those not great with managing their finances may be unable to clear their debt balance before the interest free term runs out. In this case they may very well face high interest fees, which could be unmanageable if they have built up a large debt. They may instead want to consider taking out a card with a permanently low percentage rate for greater financial security.
Equally, cardholders in control of their credit balance may not benefit from zero percent credit cards if they pay their debt off in full immediately, and so may be better off considering a card that rewards them in other ways, such as cash back credit cards.
Disadvantages of Interest Free Credit Cards
If 0% interest credit cards do still appear to be an excellent option for most borrowers, there are still some factors to consider before taking one out. If a cardholder misses a payment, they won’t just be faced with a higher debt, but will more than likely lose their interest free credit card deal. Furthermore, the interest free period generally only applies to purchases or balance transfers, thus any cash transactions such as using the card at ATMs for cash advances, or at bureaux des change buying foreign currency, will still incur an interest charge. Holders of interest free credit cards often forget this, and are surprised when they have to pay interest.
Another disadvantage of these cards is that they are unlikely to be offered to any borrower with a poor credit rating. Such borrowers are advised to apply for one of the many credit cards for bad credit offered by high street and online lenders: if they obtain one of these cards, and run their account well for a certain period, they may build up enough of a credit rating to qualify for an interest free credit card.
Interest Free Credit Card Charges
Users should also beware of the various credit card charges that can be part of any credit agreements with these cards. There may be monthly fees for using the cards, and balance transfers often incur a charge of roughly 2% or 3% of the balance being transferred. Relevant fees should always be considered, as they may make interest free credit cards unprofitable.
Applicants are therefore advised to compare interest free credit cards between lenders and the length of any interest free offers, as well as the extent of associated charges, to source the best interest free credit card deal for them.