If you have been doing your credit card research, you may well have seen ‘0% on purchases’ crop up. However, with all the different introductory deals, APRs and fee structures, it can be hard to understand what 0% on purchases actually means.
Essentially, a card offering 0% on purchases will give you a specified period of time during which all new purchases are interest free. How long the interest-free period is depends on the credit card and can range from one month to 30 months. When you use a card that has 0% on purchases, you can buy an item and then have several months to pay off the balance without incurring any interest charges.
How does 0% on purchases help?
A card with 0% on purchases can be a useful financial tool. If you have a large purchase to make, like a holiday or house renovation supplies, you can use your 0% purchases card to make the payment and give yourself some breathing room to pay off the balance.
Or you could use the card for emergencies, such as car repairs. Or you could just use it for several small purchases — it’s up to you. Having a 0% purchases credit card means that you can use the card to buy items on credit and protect yourself against high interest charges during the specified interest-free period.
What’s the catch?
The key thing you need to be aware of with a 0% purchases deal is that the interest-free period is limited. If you take out a credit card with a 28-month 0% purchases offer, any balances that remain after 28 months will begin to accrue interest at the card’s standard rate.
A typical APR on a credit card stands at around 18%, so you will want to make sure you pay down the balance within the interest-free period in order to avoid any interest charges.
Also, just because your card has a 0% purchases offer, that doesn’t mean you are exempt from making any payments. Cards still require you to make the minimum monthly payments, and some will even withdraw the 0% offer if you miss any payments.
How do I know if my card has 0% on purchases?
You will be able to find information about your card’s 0% purchases offer (if it has one) in the card’s summary information. Typically, it will be below information regarding the purchase rate (the rate of interest that will be charged on purchases outside the introductory period). Look for anything regarding introductory offers. Cards that have a specific 0% purchases offer will usually advertise this on their webpage, as it is a key selling point. Alternatively, you can look under the 0% purchases category on your preferred comparison site (such as The Motley Fool) to research different options.
It is worth mentioning that the introductory period will begin when the credit account is opened, so make a note of when your interest-free period is due to end so you are aware of when the rate returns to the card’s APR.
One area that may cause some confusion is the standard offer of around 56 days interest-free on purchases. Most credit cards will have this somewhere in their terms and conditions. This isn’t a specific introductory offer. Instead, it means that you will not be charged interest on purchases for that grace period, provided you pay your balance in full and on time each month. Purchases are typically covered under this offer, whereas cash withdrawals and money transfers are charged interest daily.
If you’re ready to shop deals on 0% purchases cards, be sure to check out The Motley Fool’s top picks for 0% on purchases deals.
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