Interest Free Credit Cards
Compare Interest Free Credit Cards
Considering a large purchase? Use your credit regularly for buying goods and services? Avoid interest on your credit card purchases with an Interest Free Credit Card.
Interest Free Credit Cards offering 0% purchase promotional periods have become a mainstay of the Australian market in the last couple of years. The selection of credit cards offering these interest free deals is relatively small, and to be accepted for them you will need an A grade credit report.
How does a 0% interest free credit card work?
During the 0% interest period, you can make a purchase, as long as some basic conditions are met, you will not have to pay it off for however many more months the promotion lasts for.
If you repay the whole balance during the 0% promotional period, you will be charged no interest on the amount you spent on purchases during the promotional period.
However, your purchases will start to incur interest at the revert rate (this is either the Cash Advance or Purchase Rate) if you don’t pay off the full balance before the 0% promotional period ends, or if the credit card terms and conditions are breached.
The seven key points to consider when accessing Interest Free Credit Cards
1. The 0% Interest credit card Rate - How do I ensure my card is really Interest Free?
To take full advantage of these Interest free credit cards you must be disciplined about how you repay the amount you spend on purchases during the promotional 0% period. Paying off the balance due each month in full is the most effective way of ensuring you pay no interest on these purchases.
If you do not repay the full balance of the purchases made during the promotional period the outstanding balance will attract interest immediately the promotional period ends at the revert rate of interest.
For example, if you spent $1,000 on your 0% purchase credit card and paid back $500 during the interest free period.
When the 0% promotional period ends and the revert interest rate commences, interest will be charged on the outstanding $500.
2. Terms and Conditions to maintain the 0% interest on purchases
The 0% period is a promotional offer and card providers reserve the right to withdraw these 0% offers if you don’t manage your card in synch with some pretty tight terms and conditions.
The most common condition that is breached and causes the 0% deal to lapse is the failure to make at least the minimum repayment on the credit card balance at the end of every statement period. So be sure that you will be able to make these payments each and every month before considering these 0% Purchase cards.
The second common breach is where cardholders exceed the credit limit of their card, so they spend over the amount that the card provider has stated as the maximum amount they will lend on the card.
The penalty for breaching the card providers terms and conditions can be hefty with some withdrawing the 0% purchase rate, so be vigilant and check out the small print prior to making any application.
3. The 0% interest rate only applies to purchases
The 0% promotional rate only applies to transactions made with the card that are considered 'purchases', as defined by the card provider.
As a general rule cash advance transactions made with the credit card will typically be charged a handling fee of around 3% and the debt will start accruing interest straight away - usually at a higher rate - as cash transactions are not often included in the standard interest free period.
Any transactions that attract interest could very quickly negate the savings you make on the promotional 0% purchase rate. 0% credit cards should not be used for any cash advances, including ATM withdrawals, buying foreign currency and using you credit card to buy credit at casions. Relatively high interest rates are applied to these types of transaction, and they start accruing interest immediately. Check the terms and conditions to understand exactly what payments are included in the introductory rate, what transactions are exempt and the relevant interest rates.
4. 0% Interest Credit Cards are different to Interest Free Period Cards
Credit card interest free periods are very different to cards with Interest Free promotional periods.
The majority of Australian credit cards have an interest free period, this generally lasts up to 45 or 55 days and, in all but a few cases, only applies to purchases made on the card.
In the case of Interest Free Period cards, purchases would only be interest free when the previous and current months balance have been repaid in full.
5. Introductory 0% Interest Rate Term.
The start and end date of the 0% Purchase Rate promotional period are key when planning your repayment schedule to avoid paying any interest on purchases made during the promotional period. If you fail to repay the total balance by the end date of the promotional period you will have an outstanding balance which will then be subject to interest charges at the revert rate, and not the 0% promotional period rate.
6. Paying just the minimum repayment each month will potentially lead to interest charges
By only paying the required minimum monthly repayment, your account will not go in to default, and the 0% interest rate on purchases will continue to be valid. By taking this repayment approach you will be left with a balance at the end of the promotional period, which if not paid of by the end date of the period will attract interest charges at the revert rate. To avoid these interest charges ensure you pay off the balance in full by the end date of the promotional period.
A good way to avoid a balance at the end of the promotional period is to set yourself a repayment schedule simply by dividing the balance on your card by the number of months left in the promotional period, and then paying this amount.
7. What is the Revert rate and when does it apply?
Once the promotional 0% period ends any new purchases charged to the card will attract interest charges at the purchase rate of interest.
Any balance from purchases made with the card that have not been repaid by the end of the promotional period will be charged at the revert rate which is generally either the purchase or cash advance rate of the card, and will be stated in the terms and conditions of the card.
How to Compare 0% Interest Credit Cards
There are several key features you need to examine when comparing and selecting a card. It is also important to look at your own finances and the way you manage your money to find the credit card that is best suited to you.
The length of the 0% promotional period – The longer the period the longer you will have to repay the debt on the card without attracting any interest charges.
The cards Revert Rate of interest - At the end of the promotional period the 0% purchase rate will revert to a different higher interest rate that is generally either the cards purchase or cash advance rate. To maximize your interest savings and avoid paying any interest on your purchases during the promotional period, you will need to clear the full balance on the card within the promotional period, if you don’t clear this balance this is when the revert rate becomes important.
The revert rate will be applied to any balance which you do not clear within the promotional period.
If you are considering holding onto the card once the 0% purchase Rate deal has expired you will also need to understand what interest rate applies to new purchases made on the card once you are outside the 0% promotional period.
Annual card fee - 0% purchase credit cards may attract an annual fee that will generally be added to the balance of your card on the day the 0% promotional period commences. Higher annual fees generally mean a deeper range of benefits, assessment of the value of any benefits to you, relative to the annual fee should be part of your selection process as high fees can soon negate any savings made from the 0% purchase deal.
Benefits with immediate $$ value - If you are using your interest free credit card for a specific purchase it is worth looking at benefits associated with some types of purchase, for example if you intend to use your 0% card to purchase a holiday, many cards now include comprehensive travel insurance at no additional cost, so long as you use the card to make the holiday purchase.
Manage your budget so you can be sure that you can make the repayments - 0% Purchase Rate Cards deliver the best results when they are used to make purchases, the value of which are then fully repaid before the expiry date of the promotional period. So to derive this 0% interest benefit set out your budget and establish the amount you know 100% you will be able to repay, for success here, be conservative, as failing to repay the full amount will very soon negate any savings you have budgeted.
0% Purchase rate card terms and conditions - Prior to applying, carefully study the terms and conditions looking out for how the deal, particularly the purchase rate, changes when the promotional period ends, and any clauses and penalties that could cancel the offer.
Interest Free Credit Cards - Frequently Asked Questions
Interest free means you will not have to pay any interest on the purchase you made during the promotional period (e.g. 6, 12, 24 months). You still have to pay a minimum monthly repayment during this period, as you would with any standard credit card purchase.
You must repay a minimum amount every month by the date shown on your statement (this is the date your card provider should receive the payment, not the date on which you make the payment).
For 0% Purchase Credit cards, the minimum repayment is usually in the range of $20 or 2% of the outstanding balance, whichever is higher.
You do not have to make a repayment if your balance is zero or in credit. You may pay all of or more than the outstanding balance if you wish. The minimum monthly repayment as noted on your statement may not pay off your outstanding balance within the promotional period.
At the end of the promotional period, any outstanding balances will incur interest at either the cash advance or purchase rate of the card, depending on which the card reverts to at the end of the promotional period. Check the Cards terms and conditions to understand which rate the card reverts to at the close of the promotional period.