Find out what happens to your credit card interest rate when the 0% p.a. introductory purchase period ends.
If you have a credit card that offers 0% p.a. interest on purchases, remember that this rate is only offered for a limited time. At the end of the promotional period, any outstanding balance starts attracting interest at the standard variable rate for that card. With some purchase rates as high as 21.99% p.a., it's important to understand the key details of 0% interest purchase offers so that you can make the most of this introductory offer when you need it.
How do 0% interest purchase cards work?
A card that offers 0% p.a. interest on purchases allows you to make new purchases without attracting interest charges during the introductory period. The time period for this interest-free offer can vary from one credit card to another, with options typically ranging from 6 to 12 months.
This introductory rate typically applies to most everyday transactions made with your card. Purchases that are not eligible for 0% purchase rate offers usually include cash advance transactions, gambling, government charges and utility payments, so always make sure you check the definition of an "eligible purchase" for these types of offers.
Compare 0% Interest Purchase Cards
If you are carrying a balance when the 0% purchase rate reverts to the standard purchase rate for that card, it will attract interest at the standard rate for that card. For example, let's say you have a card offering 0% interest on purchases for 6 months, with a standard variable purchase rate of 19.99% p.a. If the total amount of your purchases during the 0% period is $5,000 and you pay off $3,000 in the first 6 months, that will leave you with a balance of $2,000 at the end of the introductory period. This outstanding balance would then attract interest charges of 19.99% p.a. until you paid it in full.Back to top
The difference between the purchase rate and the cash advance rate
Just about every credit card has two different interest rates. The purchase rate refers to the interest you have to pay for eligible purchases you make, while the cash advance rate applies if you use your credit card to withdraw cash or for a "cash equivalent" transaction. For example, you could use your card to make a purchase of $1,000 and also to withdraw $1,200 from an ATM. Both these amounts will, in all likelihood, attract different interest rates, and cash advance rates are typically higher than purchase rates.
It is important to remember that there is no interest-free period on cash advances, even with these 0% purchase offers. While the interest rate at the end of the 0% p.a. interest period reverts to a standard purchase rate, cash advances attract the cash advance interest rate from the time they are made. This includes ATM withdrawals, gambling transactions and purchases of foreign currency. Some issuers also define government charges and bill payments as cash advances.
Note: Low cash advance rate credit cards can be helpful when you urgently need cash and need to withdraw funds. learn more hereBack to top
What are the usual conditions that apply for 0% purchase rate offers?
As with most promotions, such cards require that you adhere to certain conditions in order to take advantage of the interest-free period. If you fail to do so, the offer comes to a close and you have to pay the regular interest rate. Three common requirements include:
- Making eligible purchases (ie. not cash advance transactions)
- Not exceeding your credit limit
- Making minimum monthly payments on time
If these conditions are not met, the 0% interest purchase rate may not apply. Checking these requirements before getting a card will help you ensure you meet the eligibility requirements to take advantage of this offer.
- Expert Tip: Remember that when a card offers 0% p.a. interest on purchases, the offer is limited to purchases. As a result, if you use such a credit card to withdraw money (a cash advance), you end up paying a high cash advance rate.
How can I benefit from the interest savings?
0% purchase rate credit cards give you more flexibility for paying off expenses over several months. As the interest-free period is available for a limited time only, these cards are popular for people who are making a lot of purchases in a short amount of time.
For example, let's say you want to get some Christmas shopping done in the first week of Christmas but don't have enough savings to buy everything you need at once. If you got a 0% purchase rate credit card, you could make all your purchases in one go and then pay it off gradually using money from your salary (or even your Christmas bonus). As long as you finish repaying the balance by the end of the introductory period, you will avoid interest charges – and avoid last-minute Christmas shopping stress in the process.
0% purchase offers and stoozing
Stoozing refers to an act of borrowing money at 0% p.a. interest, placing the money in a high-interest bank account and making a profit owing to the interest earned. If you use a credit card that offers 0% interest on purchases intelligently, you can benefit by using this technique.
Consider the following example. Let's say you have enough savings to buy a new tablet computer, but you elect to use a credit card to pay for it instead. The cash you intend to use to pay for the purchase can earn interest in a savings account until the 0% p.a. interest period on the credit card comes to a close. All the money you make in the meantime, in the form of earned interest, is profit. This practice requires that you maintain discipline and that you keep setting money aside for every purchase you make.
Balance Transfer Offers
If 0% purchase rate offers don't seem right when you need to make your purchases, another option is to take advantage of a balance transfer deal. Transferring an existing balance to another card can relieve the pressure of additional payments on interest charges. Ideally you would like to define your objective early, if the objective is to relieve you of the interest repayments so that you are able to repay more of your debts then an option may be a balance transfer.
When it comes to cards that offer 0% p.a. interest on purchases, they are most effective when you pay off your balance before the promotional period ends. If that's not possible, you should still aim to have as much of the debt paid off as possible before the standard purchase rate kicks in. Remember to consider the standard features of the card, and compare a range of options, so that you can find an option that suits you now and in the future.