It may surprise you to know that your credit card has more than one rate of interest. There is its purchase rate, balance transfer rate, money transfer rate and cash advance rate. But it’s the credit card purchase rate that dictates what interest you will be charged on anything you buy using your card.
So let’s take a look at how a credit card purchase rate works, how it differs from an APR and what a 0% purchases card is.
What is a credit card purchase rate?
Your credit card purchase rate is the rate applied to any new purchases made on your card. It is commonly referred to as your card’s interest rate. This is because it is the rate you will be charged on any outstanding balances.
It’s important to understand that most credit cards have an interest-free ‘grace period’. You won’t pay interest on your purchases straight away. If you pay your balance in full and on time, you can avoid incurring any interest charges at all.
However, if you leave an outstanding balance on your card – and you don’t have a 0% purchases promotion period in place – you will be charged interest at your purchase rate.
How is it different from an APR?
Your APR (Annual Percentage Rate) is the cost of borrowing over a whole year. This is the rate you will want to look at when comparing credit cards. It will give you the best handle of the compulsory charges included on any card.
Your card’s APR takes into account interest as well as any other charges included with your card. So it includes your purchase rate. But it also includes things like annual fees. So that is why you may find that your credit card’s purchase rate is different from your APR.
What other rates does a credit card have?
Alongside your purchase rate, you will find that your credit card also has a cash advances rate, a balance transfer rate and a money transfer rate.
Confused? Don’t be.
The likelihood is that you will mostly use your card for purchases. But if you plan to use your card to withdraw cash (not a wise move as you will be charged a fee and interest straight away) or to transfer a balance, it is worth knowing what you could potentially be charged for those transactions.
What is a 0% purchases card?
A 0% purchases credit card is one that gives you an interest-free period on purchases for a set period of time. So for an agreed period, typically several months, you will not be charged your credit card’s purchase rate if you leave an outstanding balance.
This type of card is useful if you want to spread the cost of what you buy over several months. For example, if you need to buy a new sofa, you could use a 0% purchases credit card and pay the balance off over several months. Used correctly, you could avoid paying any interest at all!
But the key here is to make sure that you pay the balance off before the end of your interest-free period. Because if there is anything left outstanding, your card will revert to the purchase rate. And then you will incur interest charges after all.
Our list of top-rated 0% purchase credit cards in the UK is a great place to help you determine which card is best for you.