0% credit cards explained

Whether it’s making larger purchases or transferring existing debt, many people use 0% credit cards as a way to manage their finances. However, like many financial products, it’s important to know the potential pros and cons.

In this guide, we’ll dive into how 0% credit cards work, how to use them responsibly, and the alternative options available.

In this guide:

• What is a 0% credit card?
• How do 0% credit cards work?
• Checking your eligibility for a 0% credit card 
• What are the benefits of a 0% credit card?
• What are the drawbacks of 0% credit cards?
• How to use a 0% card responsibly
• What are the alternatives to a 0% credit card?
• More resources and support

What is a 0% credit card?

A 0% credit card is a credit card with a 0% introductory interest rate available for a set period – often between six and 34 months.

This allows you to make a purchase and then pay off the amount you’ve spent (over a set period of time) without the burden of interest. You just have to make sure you pay off that amount before the introductory 0% interest rate ends.

Once the 0% offer period ends, standard rates will apply to your card’s remaining balance. But, if you clear the debt before the end of the pre-agreed period, no extra charges will apply.

What is 0% APR?

A 0% APR (Annual Percentage Rate) is another way to describe an interest-free credit card. It means that you won’t be charged interest on your outstanding credit card balance until the end of the introductory offer.

What is a purchase rate on a credit card?

A purchase rate is the rate of interest charged specifically on credit card transactions. This means if your credit card has a 0% interest rate on purchases, you won’t be charged interest during the offer window.

For example, some balance transfer credit cards may offer 0% interest rates on transferred credit balances, but will charge interest on any new purchases made with the card. This is the purchase rate.

Always read the terms and conditions to help you understand which rates apply to different contexts, as this can help you avoid unwanted surprises and fees.

How do 0% credit cards work?

Let’s dive into the key details you’ll need to know about how interest free credit cards work:

The start of your 0% interest rate

With 0% credit cards, introductory rates usually start from the day your account opens, or the date of your first transaction.

Introductory 0% interest periods

Introductory 0% credit card periods give you a window of interest-free spending, so long as you repay your balance before the end of the introductory offer. This could be as little as six months, or up to 34 months, depending on the offer and your eligibility.

What your 0% interest rate applies to

It’s important to highlight that with many credit card providers, the 0% offer only applies to specific card transactions and balance transfers. Otherwise, you may be charged a higher interest rate.

The end of your 0% interest rate

You’ll usually receive a warning when the 0% interest period is coming to an end, so you can prepare accordingly. If you haven’t cleared your credit card balance before the end of the 0% introductory rate, you’ll pay the standard interest rate on the remaining balance.

Checking your eligibility for a 0% credit card

Before applying for credit of any kind, you should carry out a credit check from one of the three main credit reference agencies (CRAs):

• Experian
• Equifax
• TransUnion

Reviewing your credit score ahead of time can help you determine your chances of being accepted, and what you might need to do to help improve your credit score.

How is the minimum payment calculated on a 0% credit card?

The minimum payment on a 0% credit card is the smallest amount you must pay each month, though the amount can depend on the lender and the size of the outstanding balance. That being said, minimum payments are usually at least 1% of the outstanding balance. So, as the outstanding balance reduces, the minimum payment will too.

If you don’t make this repayment, a late repayment fee may be added to your outstanding balance and you could risk losing your interest-free offer.

Late and missing payments can have adverse effects on your credit rating, so it’s important to consistently meet this minimum payment. Learn more about how long missing payments stay on your credit report with our guide.

What are the benefits of a 0% credit card?

From zero interest to spreading out payments and saving on existing debt, 0% credit cards have various potential benefits:

1. Interest-free purchases

As mentioned, the most obvious benefit of a 0% credit card is that it allows you to borrow without paying interest for a certain time period. This usually depends on you only using the card for its intended purpose and paying off your balance before the deal ends.

So, if you’re hoping to make a larger purchase, 0% credit cards can give you the opportunity to do so without worrying about interest building up as you make your repayments. Alternatively, some interest-free loans offer a similar option – check out our guide to 0% interest loans for more information.

2. Balance transfers

Some 0% credit cards also allow balance transfers, meaning you can transfer any high-interest debt onto a card with a different provider (which offers 0% interest for a fixed period).

This can help make your debt easier to manage, giving you the chance to pay off the credit card debt without incurring further interest. It’s wise to pay off as much as you can manage within the promotional 0% period. For an in-depth look at how this works, read our guide on credit card balance transfers.

3. Earn rewards

Some credit cards offer rewards in the form of points that can be redeemed for vouchers, cash back, retail discounts, and more. This means that with every penny you spend on the 0% credit card, you could also be earning rewards that help you save money with exclusive deals and discounts.

4. Build credit

Making consistent payments can also positively impact your credit rating, so it’s doubly important to commit to this!

Sometimes, CRAs might recommend applying for a credit card as the next step to improving your credit score. However, if you’re worried about overspending, it might not be the right time to apply. For more tips on how to improve your credit rating, explore our handy guide.

What are the drawbacks of 0% credit cards?

While there are various potential benefits to a 0% credit card, it’s also important to highlight the potential drawbacks, too:

• The 0% rate is only temporary: Once the introductory period ends, interest may return a higher standard interest rate, which will apply to your remaining debt.
• Charges may apply: You may need to pay annual or balance transfer fees when using 0% credit cards, so it’s important that you’re fully aware of the terms before entering into an agreement. For instance, balance transfer cards may charge fees of around 3 to 5% of the total balance transferred.
• Late payments may end your promotional offer: If you make a late payment or miss a payment altogether, you may be charged and lose your promotional offer. Plus, this could damage your credit score, which you should avoid at all costs.

How to use a 0% card responsibly

Now that you’re aware of the potential drawbacks, here are some suggestions for how to use a 0% credit card responsibly:

1. Understand the terms and conditions

You’ll need to ensure that you’re confident about how to use your card. For example, if you use your card for purposes that aren’t covered in your introductory rate (such as cash withdrawals), it may increase the amount of interest and fees you pay.

You’ll also need to make sure to plan ahead. Add the end date of the 0% period to your calendar so you know exactly when you need to clear the balance by. Consider setting reminders each month to tell you how long you have remaining in the 0% interest period.

2. Create and stick to a budget

Effective budgeting habits are a must if you want to make sure you can comfortably make your credit card repayments.

You should calculate how much you’re going to need to pay each month before the 0% offer period ends, then factor this into your monthly budgeting.

If you’re looking for more guidance on this, our guide on effective monthly budgeting tips is a great place to start.

3. Set up automatic payments

No matter if it’s a credit card or a temporary payday loan to help keep your finances afloat, setting up automatic payments is key to making timely payments. Even with 0% interest, you must still make regular payments, otherwise you could incur fees and risk losing your introductory rate.

The best way to commit to this is to set up automatic payments from your bank account, whether that’s a standing order, Direct Debit or continuous payment authority. Your monthly budget can help you make sure there’s enough funds in the account you’ll pay for it with.

4. Avoid maxing out the credit limit

The allure of interest-free spending may be tempting, but it’s important to avoid overspending and maxing out your credit limit. Your credit utilisation is one of many scoring factors for your credit report. Plus, you’ll need to be confident that you can afford to pay it back before the standard interest rate kicks in.

So, regularly check your credit card statement to ensure you’re not nearing the limit.

What are the alternatives to a 0% credit card?

As mentioned, 0% credit cards aren’t the only option out there. Let’s look at a couple of alternatives.

1. Personal loans

Personal loans are another borrowing method which often have fixed interest rates and terms.

Loans are sometimes used for debt consolidation, too. For instance, if you have high-interest credit card debt, you may choose to pay it off with a personal loan with lower interest.

Flexible loans like our short-term loans might also be used to cover unexpected expenses in the absence of an emergency fund.

2. Low APR credit cards

There’s also the option of low APR credit cards. These offer a lower rate of interest (which is fixed and ongoing) rather than a temporary 0% introductory rate. Low APR credit cards can help make your card payments more manageable, and you won’t need to worry about clearing your balance before the promotional period ends.

However, if you can’t clear your balance amount each month, interest will be added to your existing debt – so it’s worth considering which product is right for you.

3. Savings plans

Our final alternative is to set up an effective savings plan, which can be used in place of borrowing. Whether you can save a large sum each month or perhaps a few pounds here and there, it all builds up eventually, giving you a pot to use when you need it.

However, we know how difficult it can be to get started with saving, so we’re here to help. As a starting point, why not dive into our guide on how much can I save in a year? You’ll find a range of practical tips on how you can save for the near and distant future.

More resources and support

So there we have it, everything you need to know about 0% credit cards. However temporary, interest-free spending can help spread the cost of large purchases. But like many financial products, you’ll need to be aware of the potential drawbacks and considerations.

If you found these insights helpful, make sure to head over to the Moneyboat blog for plenty more. You can read our guide to interest rates and how to manage your personal cash flow.

For free and confidential support and financial advice, reach out to third-party organisations and charities like StepChange, Citizens Advice, and MoneyHelper.