There are credit cards that offer the cheapest way to buy something when you cannot afford to pay for it in one go. Here is a guide on how to borrow interest-free with the use of a 0% purchases card and spread the cost over a number of months.
How does a credit card with 0% on purchases work?
You can make use of any credit card to spend, but unless you pay off everything that you buy each month, you will normally have to pay for interest.
Cards that offer 0% on purchases charge customers with no interest at all for several months after you receive the card. This is known as an interest-free period.
For example, a credit card with a 24-month interest-free period means that you will not have to pay interest on what you buy using your card for 24 months as long as you make the minimum payment every month. The longest 0% deals can last for more than two years.
Why get a 0% deal?
You can make use of a 0% purchases card to borrow for free.
You can divide the cost of a large purchase over several months. As long as you pay it back before the end of the interest-free period and do not break the terms of the card, you will not be required to pay any interest or fees at all.
How much does a purchases card cost?
If you pay back what you borrowed and used the card responsibly, you can borrow interest-free.
However, unless you pay off the outstanding balance in full before the end of the 0% period, you will begin to be charged interest each month.
You will also have to dodge the other fees and charges that can be associated with credit cards. Learn how to dodge credit card charges to make sure you get your card for free.
Make sure that you do not spend beyond your means because a 0% purchases card does not offer you free money – you will eventually have to pay off every penny you borrow.
How to pick a 0% purchases credit card
The best interest-free purchases credit card is the deal which offers you 0% for the longest period, allowing you more time to pay off the balance without being charged interest.
Each card also has a representative APR, which is a guideline of the interest rate they will charge after the 0% period ends.
You should only base your choice on this rate if you plan to carry on using the card after the end of the interest-free period.
How to manage your card
Always pay at least the minimum amount
Your credit card statement will show you the minimum amount you need to pay each month and the date that you have to pay it by.
A late payment charge which costs around £12 will be charged to you if you miss a payment, and it will show on your credit record too.
Your provider could also end the 0% purchases deal on your card and start to charge you interest on what you owe.
How much is the minimum payment?
At least 1% of the amount that you owe, plus charges and interest if you do not have a 0% deal. There will also be a minimum amount of at least £5.
Note the date the deal ends
Check on how long your card will be interest-free by determining how many months your deal lasts and then count forward from the date that your application is accepted.
Remember this date when you work out how you will be able to repay the card, and schedule a reminder on your calendar or phone to off the outstanding balance and close your account at the end of the period.
Try to clear the balance before the 0% deal ends
If you want to dodge paying any interest at all, you will be required to pay off the full balance by the end of the interest-free period.
The easiest way to do this is by dividing the balance equally. Divide your total outstanding balance by the number of interest-free months to determine how much to pay every month. For example, to pay off a £3,000 purchase over 30 months, you would need to repay £100 per month.You could also make only the minimum payments every month and then pay off the rest just before the end of the interest-free period. Make sure that you save up enough to repay it by the end since you will have to begin paying interest otherwise. You could even save this money in a high-interest savings account and earn a profit.
What to do after the interest-free period
When the period ends, your card provider will begin to charge you interest every month if you still have a balance that is due on your card.
If you still want to buy things with a credit card, it is worth finding a new card that offers a lower interest rate, or even a new 0% purchases card.
You can compare credit cards and APR here.
What if there is still a balance left?
If you do not succeed to repay the entire balance before the end of the 0% period, you could make use of a balance transfer to move it to a new card with a 0% period.
Alternatively, you could avail of a low rate credit card instead of a 0% purchases card. Although these do charge you for interest, they offer low rates that can continue for a longer period, so they can work out cheaper if you need years to pay off your card.