No interest credit cards emerged in response to the growing popularity of buy now, pay later services like Afterpay and Zip. Thesecredit cards occupy a space between traditional credit cards and buy now, pay later offerings.
What is a no interest credit card?
A no interest credit card combines the convenience of a credit card with the interest and fee structure typically associated with buy now, pay later services. Here are the key features:
- Zero interest on purchases. As the name suggests, no interest is charged on purchases made with the card. If cash advances are permitted, there is usually no interest on ATM withdrawals (although a one-time cash advance fee may apply).
- No fees, except for the monthly fee. No interest credit cards could also be called no fee credit cards, as they don't charge annual fees, late payment fees, or foreign exchange fees commonly associated with credit cards when shopping online at international stores. Instead of interest and fees, banks charge a simple, relatively low monthly account fee, which is often waived if the card hasn't been used during the statement period.
- No additional perks. If you want to earn rewards, enjoy airport lounge access, or take advantage of other benefits often provided by credit cards, these cards may not be the best fit for you.
No interest credit cards vs. buy now, pay later
Despite the similarities between no interest credit cards and buy now, pay later services, there are some notable differences to consider. No interest credit cards are not an exact substitute for the buy now, pay later service you may be currently using.
Similarities
- Interest-free purchases. Both no interest credit cards and buy now, pay later services generally offer interest-free purchases.
- Minimal fees. Both payment options typically have no late fees or annual fees.
Differences
- Repayment structure. Buy now, pay later services like Afterpay often have a predetermined instalment plan for repaying purchases. No interest credit cards do not have this structure, and it is possible to carry a balance between months without incurring interest charges.
No interest credit cards vs. traditional credit cards
No interest credit cards differ from traditional credit cards in terms of their interest and fee structures. Here's a comparison:
Similarities
- Balance carry-over. As with a traditional credit card, any outstanding balance on a no interest credit card will carry over to the next billing cycle.
- Credit limits. No interest credit cards have credit limits, although they are typically lower compared to most other types of credit cards.
Differences
- No interest on cash advances. While some banks have blocked cash advances on their no interest credit cards, those that allow them do not charge interest on cash advances. Nearly all traditional credit cards charge interest on cash advances.
- No annual fee. Although some traditional credit cards have no annual fee, most do charge one. No interest credit cards do not have annual fees.
- No late payment or foreign exchange fees. While some traditional credit cards may waive foreign exchange fees, most charge a fee for late payments. No interest credit cards do not have these fees.
