Some credit providers offer 0% interest on credit cards, often for a limited period. However, lenders are unlikely to offer debt without costs, which is why it’s important to consider any associated fees and other terms and conditions carefully. This helps ensure you're getting a deal that truly suits your needs.
What is a 0% purchase credit card?
0% purchase credit cards offer a specified period during which you will not be charged any interest on your purchases, provided you meet the minimum payment requirements. This interest-free period usually ranges from 6-12 months, but can be as long as 24 months.
Why Choose a 0% Purchase Credit Card?
If you're planning to make significant purchases, a 0% interest credit card can be beneficial, as it allows you to spread the cost of your spending without the added burden of interest charges. However, it's important to plan ahead for how you'll pay off the balance before the interest-free period ends, as standard interest rates can be high.
David Boyd, co-founder of Credit Card Compare, explains, "When used correctly, introductory 0% purchase rates can save money in the short-term on credit card interest for eligible purchases. Weigh up how long the interest-free period lasts, and don't forget to consider what the rate reverts to when the introductory period ends."
How 0% purchase credit cards work
When you use a 0% purchase credit card for your transactions, the card issuer will not charge interest on the purchases you make within the promotional 0% period. This is regardless of whether you pay off your balance in full. However, just like other credit cards, you’ll still need to pay the minimum repayment amount each month, even during the promotional 0% period.
Watch closely and clear the balance before the end of the promotional period to avoid accruing substantial interest charges. After the promotional period expires, any remaining balance will be subject to the card's standard variable interest rate.
What are the best interest-free credit cards in Australia?
There are different types of interest-free credit cards in Australia, and the right one for you depends on your specific needs and financial situation. Typically, these cards offer a 0% purchase ratefor a promotional period, during which no interest is charged on your purchases. However, once the promotional period ends, the revert rate, which refers to the standard interest rate applied to new purchases or any outstanding balance, can be significantly higher.
In addition to cards with a limited 0% purchase period, you may also come across lifetime interest-free credit cards, such as the NAB StraightUp Card.
While a lifetime interest-free credit card doesn’t charge you interest, it’s unlikely to be free of cost. Such cards typically charge fixed ongoing monthly or annual fees, which can add up over time. It’s important to compare your options, including low-rate credit cards with low or no annual fees, to find the most cost-effective solution for you.
Another type of 0% interest card is a 0% balance transfer credit card. These cards allow you to transfer existing debt from another credit card and avoid interest charges for a set period, which can range from 6 months to a couple of years.
After this period, the card typically reverts to a higher interest rate, so it’s important to pay off the balance before the promotional period ends. Additionally, this type of card is usually meant for debt reduction, and you may be charged interest if you use the card for making new purchases.
To find the best interest-free card for yourself, start by thinking about the type of card you want. In general, you may want to look for the longest possible interest-free period, a low revert rate if you choose a card with an introductory 0% purchase rate, and low (or no) annual or monthly fees. Note that 0% credit cards don’t often offer rewards, but some might—so make sure to review what you want from a card and compare the features and costs to make an informed choice.
What to know before applying for a 0% purchase credit card
- Promotional period length: Consider the duration of the 0% interest period. Some cards may offer up to 24 months interest-free on purchases
- Interest rates: Be aware of the standard variable interest rate that applies or reverts back to at the end of the promotional period.
- Minimum repayment: Ensure you make at least the minimum repayment each month to avoid penalties.
- Annual fees: Check for any annual fees associated with the credit card.
- Additional perks: Some issuers combine an interest-free period on new spending with rewards like frequent flyer points.
- Eligibility criteria: Specific eligibility requirements apply to cards individually. Check that your income is high enough, that your credit score is good, and that there are no recent missed payments or rejections for credit.
How to benefit the most from 0% purchase credit cards
- Set a repayment plan: Plan your repayments in such a way to clear the balance before the end of the promotional period. This can help you avoid high-interest charges.
- Monitor your spending: Keep track of your purchases and payments to stay within your budget and avoid unnecessary debt.
By considering these factors and using the card responsibly, you can take advantage of the 0% interest on purchases while avoiding penalties or additional charges.
Can I be charged interest on a credit card with a 0% interest rate?
Yes, you can still be charged interest on an interest-free credit card under certain conditions, such as:
Once the promotional period ends
Many interest-free credit cards offer a 0% interest rate for an introductory period, such as 6, 12, or even up to 24 months. Once this period ends, any remaining balance is charged at the card’s revert rate, which is often higher than average.
Missed or late payments
You are required to make the minimum repayment on an interest-free credit card each month, even during the promotional period. Failure to pay the minimum balance on your card could lead to late payment fees, and other penalties, depending on your card's terms and conditions.
Cash advances
Most interest-free credit cards exclude cash advances from the interest-free offer. If you use your credit card to withdraw cash, you're like to incur interest immediately, often at a higher rate. Some card providers may also charge an additional fee for cash advances.
Making new purchases on a balance transfer credit card
The low or 0% interest rate on a balance transfer credit card generally applies to the transferred balance. This means any new purchases on the card are likely to incur interest, unless the card also offers 0% interest on purchases.
It’s important to carefully read the card’s terms and conditions to understand what situations could lead to interest charges, even during an interest-free offer.
