How do zero percent interest credit cards work?

Britons will spend an average of £300 at Christmas this year, according to research from YouGov.

Although many will use credit cards to pay the bill, monthly interest charges can increase the overall cost.

Shoppers using a typical credit card are charged an annual interest rate of 24.9 percent It would take more than a year to pay off £300, based on a fixed repayment of £20, and cost them £55 in interest, according to data from interest rate monitor Moneyfacts Compare.

That’s where zero percent purchase cards can come in handy, although it’s important to first understand how they work and make sure you can get the money back.

These cards allow you to spread the cost of major expenses over several months without paying interest. So it’s a convenient way to buy items that you may not be able or willing to pay for in advance. Used correctly, and sensibly, they can be a cheaper way to borrow.

We look at how zero percent purchase cards work, what borrowers need to know and where they can find the best deals.

How do 0% purchase card deals work?

Zero percent card deals are credit cards that offer a promotional period with no interest. This gives the borrower a fixed period of months during which he does not pay interest on purchases made from him.

They give you the option to spend money if you need to make a few big purchases, essentially giving you free credit – although it’s important to stay within the card’s limits and make minimum repayments otherwise the offer may of 0 percent are withdrawn.

Rachel Springall said: ‘A zero per cent purchase deal on a credit card allows customers to spread their spending over a few months without worrying about paying interest. Some cards have a term of up to 20 months.

Interest accrues at the end of the deal period, so shoppers should try to pay back the debt within the zero percent period on their card.

It is advisable to regularly repay more than just the minimum amount, so that you are not left with a debt that you ultimately cannot pay off.

Should you always have one in your arsenal?

Zero percent purchase cards benefit from protection under section 75 of the Consumer Credit Act. This protects purchases worth between £100 and £30,000.

Under this law, the credit card provider may be equally liable if something goes wrong with a purchase or if the item is defective, and can refund you directly.

Springall said: ‘If someone typically buys expensive goods at this time of year, it is wise to have a zero percent purchase offer ready.

‘Credit cards also protect consumers against fraud and if goods or services are not delivered.

Andrew Hagger, director of personal finance website MoneyComms, said: ‘It makes sense to use a zero percent card to fund upcoming major purchases because that way you’ll still continue to earn interest on your savings balance.

“Once you start using the card, make sure you make at least the minimum monthly payment on time. If you miss a payment, your zero percent promotional rate will immediately terminate.

‘Try to clear the balance before the end of the zero percent introductory term, so you won’t pay a cent in interest on the amount borrowed on your credit card.’

Do you have to repeatedly take out new cards?

Credit card providers use zero percent interest offers as a way to acquire new customers.

When the interest-free period ends, existing customers will usually have to open a separate card to take advantage of the offer again.

Springall said: ‘Occasionally a provider may offer an existing customer a 0 per cent balance transfer offer, but that may not be as attractive as offers advertised to new customers.’

Can they help in the run-up to expensive periods?

Customers caught selling on a whim may simply want to use their existing credit or debit card for convenience, but if they can’t pay off the debt quickly, they could be wasting their money on interest charges.

Springall said: ‘If shoppers make a habit of it, they could consider opening a zero percent credit card a few weeks before they do their festive shopping, just in time for the card to arrive in the post. to get.

‘Zero percent offers give shoppers some much-needed breathing space for a few months to spread their payments.’

Martyn James, a consumer champion, said: ‘They can help in the run-up to expensive periods, but you need to keep your spending under control.

‘Calculate exactly how much you can pay monthly. Don’t delay paying the balance, but pay as much as you can. Because the interest-free period is ending and the interest rate could be much higher.’

Best to buy zero percent credit cards

The longest zero percent purchase agreement currently lasts 22 months, with Barclaycard’s Platinum All Rounder Visa. A handful of different providers offer interest-free periods of 20 months.

Lloyds Bank, NatWest, RBS, HSBC and M&S Bank all offer credit cards with a twenty-month zero percent interest period.

Some zero percent purchase deals allow you to earn points or cashback while spreading the cost of interest-free borrowing.

M&S Bank’s Purchase Plus credit card currently offers the longest interest-free period, while you can also collect points to save money later.

The zero percent offer on purchases lasts for 20 months and cardholders get 1 point per pound spent in store, or 3 points per pound spent if you’re an M&S Club Rewards member.

The only card to offer a longer purchase offer of zero percent is Tesco Bank with its Clubcard Plus Credit Card. This gives you 24 months interest-free on purchases, while also collecting 1.25 points for every euro you spend in store.

However, this offer is only available to Clubcard Plus members and costs £7.99 per month. If you are already a member, this card is worth considering.

Santander’s ‘All in One’ credit card offers a 15-month interest-free purchase period and cashback of up to 0.5 percent on spend. However, you will be charged a monthly fee of £3.

HSBC’s card, which is interest-free for 20 months, offers £25 cashback when you spend or transfer a balance of more than £100 before December 16.