Understand how credit card purchase rate offers work and how you can save on interest costs.
If you’re planning to use a credit card to pay for major, short-term expenses such as a wedding, a holiday or Christmas shopping, then a card with a low or 0% interest rate for new customers could be a useful tool for you. While promotional purchase rate offers have the potential to help you save on interest charges, they only offer the low rate for a limited time.
Promotional purchase rate credit card offers also come with a range of other conditions and factors that need to be considered before you apply. So here we answer some of the most common questions about these cards and compare purchase rate credit card offers so that you can decide if this type of product will suit your needs.
Frequently asked questions
- How do promotional purchase interest rates work?
Purchase rate credit cards provide you with a promotional purchase rate for an introductory period, such as 0% on purchases for 6 months. This means that any eligible purchases you charge to the card during the introductory period, which begins once the card is activated, will accrue the promotional interest rate.
At the end of the promotional period, any remaining balance from your purchases will be charged the standard variable interest rate for that card.
- When does the promotional purchase rate start?
The purchase rate promotional offer will begin either from the time the card is activated or from when you’re approved. If the purchase rate promotion begins from the time you’re approved, you’ll miss out on the special interest rate for a week or two while your card is sent to you from the bank. You can find information about when the purchase rate promotion begins by reading the offer fine print.
If your card has a six-month promotional period on purchases and you make your first purchase a month after being approved for the card, you would only have five months left to pay off the balance before the standard rate applied. So if you have a purchase in mind and want to make the most of the promotional interest rate, you should make the purchase as soon as possible to give yourself more time to pay it off before the standard interest rate kicks in.
- How long does the promotional offer last?
These promotional deals are introductory offers and last for a limited time only, which can be anywhere between 3 and 24 months depending on the card. Before you apply, consider how much you’ll need to pay each month to pay off your balance before the promotional period ends. So if you have a balance of $2,000 on a card with 0% on purchases for six months, you’d need to repay $333 each month to pay down the debt before the promotion ends.
If you don’t think you’ll be able to repay your balance before the promotional offer ends, you might want to look for a card with a longer promotional period.
- What happens to my balance after the introductory purchase rate ends?
At the end of the introductory purchase period, any unpaid balance from the promotional period will accrue interest at the ongoing purchase rate of interest which usually sits between 12% and 20%. Any purchases you charge to the credit card from then on will also accrue interest at the standard variable purchase rate for that card.
For example, let’s say you have a card that offered 0% interest for 6 months with a standard rate of 19.99% p.a. (variable). If your balance was $2,000 at the end of the introductory period, the 19.99% interest rate would apply to the balance. This would cost you around $33 in interest in the first month after the introductory offer ends.
- Does the introductory purchase rate apply to all of my transactions?
As the name suggests, a purchase rate credit card gives you a deal on purchases only. Excluded purchases often include cash advances, balance transfers and gambling purchases.
- Can I have a purchase rate and balance transfer promotion active at the same time?
Yes, some cards offer both a low or 0% purchase rate on both purchases and balance transfers simultaneously. This means that when you transfer a balance to the card and use it for purchases, both balances will accrue 0% interest. While these cards can come in handy if you need to consolidate a debt and also have some purchases planned, it’s important you remember that you have two balances to pay off before the promotional offer ends.
If you have a large balance to transfer and want to focus on accruing debt, it might be best to just consider a 0% balance transfer credit card and to hold off on making any more purchases until you’ve repaid your debt.
- What if my card comes with both interest-free days and a promotional purchase rate offer?
The beauty of a purchase rate promotional offer is you can pay back a balance over a couple of months without incurring excessive interest charges (or any interest at all).
Interest-free days only apply if you pay back your entire balance by the credit card statement due date. For example, if you have a purchase rate credit card with 0% for 12 months, to get interest-free days you would need to pay back the balance of the card every month. In this case, interest-free days are essentially redundant while the purchase rate promotion is in place. However, if you plan to continue using the credit card beyond the purchase rate, the interest-free days could be a useful safety net if you plan to pay your balance in full each month.
- Do I have to make repayments if I have a 0% purchase rate credit card?
Yes. Even if you have an interest-free purchase promotion, you’re still required to make at least the minimum repayment of around 2% or 3% each month. However, if you only make the minimum repayment, you’re unlikely to repay the entire balance before the promotional period ends.
Let’s say you have a $2,000 debt to pay off under a 0% promotional purchase rate for six months. If you only paid the 3% minimum repayment or $60 each month, you’d only repay $360 of your $2,000 balance by the time the promotional offer ended. This would mean that the remaining $1,640 of your balance would continue to grow as it collected interest once the offer ended and the revert rate kicked in.
Compare credit cards with 0% purchase rate offer
Credit cards with a promotional purchase rate let you make purchases without the burden of interest as you repay for a promotional period. However, it’s important to remember that the low or 0% purchase rate is only available for a limited time and a higher revert rate will apply on any remaining balances and future purchases. So if you want to get the most out of your promotional purchase rate credit card, make your purchase early on, pay more than the minimum repayment each month and make sure you’ve paid down the entire balance before the promotion ends.Back to top