How To Use Credit Card 0% Purchase Deals Wisely
Get a Free Loan and Avoid Card Fees to Keep It Free
Credit card companies often use the lure of a 0% rate on purchases for a fixed period after taking out a card with them. A free loan is always attractive, but it is essential to read the fine print and be aware of some of the tricks the card companies use to make a profit at the unwary consumer's expense.
Advantages of a 0% Credit Card Purchase Deal
The advantage is, of course, that the consumer gets to borrow money without paying interest, provided they stick to the terms and conditions of the credit agreement. The term of the loan can be anywhere from three months to 18 months, very rarely longer. Borrowers can repay early without penalty.
Credit card companies do tend to stipulate that the borrower must repay either a minimum amount or a percentage of the outstanding loan every month, whichever is larger. The percentage is often 5% or more, so someone buying something worth £5000 is still going to need to find £250 a month to pay back. The good news is that 100% of the repayment is going to repay the capital of the loan, the bad news is that it is essential that each and every repayment is made in good time.
Disadvantages and Tricks of a Credit Card 0% Purchase Deal
Credit card companies use all sorts of tricks to catch borrowers out, allowing them to charge more than 0%. These are all hidden in the fine print.
Missed Credit Card Payment Charges Turn 0% Loans Into Expensive Mistakes
Miss a monthly payment by a day or have one bounced for insufficient funds and the credit card company will often revoke the 0% deal, charging the card at the regular rate. To add insult to injury they often apply this to the whole term of the loan, so missing the 12th final monthly payment by a day could change a 0% of £5000 = £0 cost of the loan to more than £800 at a typical APR of 16% or more. Late payments can also often incur double digit late payment fees.
It is a good idea to sign up for the direct debit of the minimum payment if the credit card company offers it, but it is still essential to have the money ready to redeem the entire loan at the end of the interest free period.
Beware of Limitations On the 0% Credit Card Purchase Deal
Sometimes the 0% purchase must be made within so many days or weeks of taking out the credit card agreement. Or it may only apply to the first few purchases made with the card, after which purchases revert to the standard double digit purchase interest rate. It is essential to know about these restrictions up front and to always act spend within them. Credit card repayments are nearly always applied to the cheapest debt first, meaning if £4500 of a credit card is at 0% and £500 is at 20%, then it is necessary to repay £4500 before being able to stop the remaining £500 attracting 20% interest.
Cancel The 0% Purchase Credit Card at The End of the Interest Free Period
At the end of the interest free period the interest rate reverts to a higher rate. Most 0% deals are only available to new customers - cancel the card and there may be an opportunity to sign up for another 0% deal a couple of years later. Most card companies debar current cardholders and those who have canceled in the last 12 months. By canceling as soon as the card is paid off this barred period is kept to a minimum.
Awareness of the Tricks and Pitfalls is Key to Using a 0% Credit Card Deal
All these tricks mean that credit card companies can offer 0% interest free purchase deals to new customers knowing that a number of these customers will end up paying a lot more than 0% for their loans. The canny consumer reads the offer, spends within the terms and then usually puts the credit card away never to be used again. Timely repayments must be made, including the last and final installment that redeems the loan.
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