You don’t often get something for nothing, but zero interest credit cards appear to be a rare exception. A host of credit card issuers now compete to offer cards that charge no interest for an introductory period ranging from three months to more than three years. It sounds too good to be true, so what's the catch?

Interest free

Balance transfer cards allow you to shift existing credit card debt to a new issuer and pay no interest on it for anything up to 40 months. Alternatively, you could take out a card charging 0 per cent on new purchases, or a combined 0 per cent balance transfer and purchases card.

If tempted, you must beware the following five pitfalls…


1. Not everyone can have one

To qualify for the best deals, you need a squeaky clean credit record. Credit card companies are only obliged to offer their advertised headline rate to two-thirds of accepted applicants, the rest could face a shorter introductory rate, may be charged interest or could even be rejected altogether.

This means people with serious debt problems who are most in need of a zero interest card are least able to get one.


2. Beware the transfer fee

When you take out a balance transfer card you typically have to pay a one-off fee of between two and three per cent of your balance.

So on a £5,000 balance, you could pay £150 making your opening balance £5,150. However, given the savings on offer, this may be a price worth paying.


3. Missed payment worry

You still have to make the minimum monthly payment on your promotional 0 per cent card.

If you miss just one, you could instantly forfeit that 0 per cent deal. Setting up a monthly direct debit should prevent this.


4. Different interest rates

Be warned, if you take out a 0 per cent balance transfer card you will still pay a fat APR on any new purchases or cash withdrawals.

Consider taking out a separate card for purchases, possibly also with a 0 per cent introductory rate.


5. Danger of debt

Zero interest cards are dangerous. If you can borrow money for free, you might spend it too easily. When your promotional rate expires most issuers will immediately charge a typical APR of 18.9 per cent, which is when they start clawing their money back.

Wise borrowers are ready for this, and either pay off the debt from savings or transfer the balance to another zero interest card. However, that debt has to be paid one day and there is no guarantee you will qualify for another zero interest card in future.

Draw up a monthly payment plan and use the free credit as an opportunity to clear your debts, rather than run up more.


Handle with care

If these pointers worry you, it might be wiser to apply for a credit card charging a low standard rate instead, with APRs starting at around 5.9 per cent. 

You can turn interest-free credit cards to your advantage but if your debts get out of control, expect zero sympathies from your card company.


Read more from Harvey Jones

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