How do zero percent interest credit cards work?

Brits will spend an average of £300 each on Christmas this year, according to YouGov research.

While many will use credit cards to help pay the bill, monthly interest charges can increase the total cost.

Buyers using a typical credit card are charged an APR of 24.9 percent It would take more than a year to repay £300, based on a fixed payment of £20, and cost them £55 in interest, data from rates examiner Moneyfacts Compare shows.

That’s where zero percent shopping cards can come in handy, although it’s important to first understand how they work and make sure you can pay the money back.

These cards can help spread the cost of large expenses over several months without paying interest, making them a useful way to purchase items you may not be able or willing to pay for up front. If used correctly and wisely, they can be a more economical way to borrow.

We look at how zero percent purchase cards work, what borrowers should know, and where to find the best deals.

How do 0% purchase card offers work?

Zero percent shopping card offers are credit cards that offer an interest-free promotional period. This gives the borrower a set period of time in months in which they do not pay any interest on purchases made with them.

They allow you to spend if you have some big purchases coming up, effectively getting free credit, although it’s important to stay within the card’s limits and make minimum payments, or else you may be taken off the 0 percent offer.

Rachel Springall said: “A zero per cent purchase offer with a credit card allows buyers to spread their spending over a few months without the worry of it incurring interest.” Some cards have terms of up to 20 months.

Interest begins at the end of the offer period, so buyers should try to pay off the debt within their card’s zero percent period.

It is recommended to make regular payments above the minimum amount, to ensure that you are not left with a debt that you cannot pay in the end.

Should you always have one in your arsenal?

Zero percent purchase cards benefit from the protection of article 75 of the Consumer Credit Law. This protects purchases valued between £100 and £30,000.

Under this law, the credit card provider may be equally liable if something goes wrong with a purchase or if the item is not up to standard and could refund you directly.

Springall said: “If someone normally buys expensive products at this time of year, then it is advisable to have a zero per cent purchase offer ready.”

‘Credit cards also protect consumers from fraud and if goods or services are not provided.

Andrew Hagger, director of personal finance website MoneyComms, said: “It makes sense to use a zero per cent card to fund upcoming major purchases, as that way you’ll still earn interest on your savings balance.”

‘Once you start using the card, make sure you make at least the minimum monthly payment on time; If you miss a payment, your zero percent promotional rate may be canceled immediately.

“Try to pay off the balance before the end of the zero percent introductory period; that way you won’t pay a single cent in interest on the amount borrowed with your credit card.”

Do you have to get new cards repeatedly?

Credit card providers use zero percent interest offers as a way to attract new customers.

When the interest-free period ends, existing customers will usually have to open a separate card to benefit from the offer again.

Springall said: “From time to time, a provider may offer an existing customer a 0 per cent balance transfer offer, but these may not be as attractive as the offers advertised for new customers.”

Could they help in the run-up to costly periods?

Customers caught up in the spur of the moment with sales may simply want to use their existing credit or debit card for convenience, but if they can’t pay off the debt quickly, then they could be wasting their money on interest charges.

Springall said, “If shoppers get into the habit, they might consider opening a zero percent shopping credit card a couple of weeks before they expect to do their holiday shopping, just in time to receive the card in the mail.”

“Zero percent offers give buyers much-needed breathing room for a few months to spread out their payments.”

Martyn James, a consumer campaigner, said: “They could help in the run-up to costly periods, but spending needs to be controlled.”

‘Calculate exactly how much you can pay each month. Don’t postpone paying the balance: pay as much as you can. Because the interest-free period will end and rates may be much higher.’

Best credit cards for zero percent purchases

The longest zero percent purchase agreement at the moment is 22 months, with Barclaycard’s Visa Platinum All Rounder. Several different providers offer 20-month interest-free periods.

Lloyds Bank, NatWest, RBS, HSBC and M&S Bank offer credit cards with a 20-month zero per cent interest period.

Some zero percent purchase offers will also allow you to earn points or cash back while spreading the cost of the loan interest-free.

The M&S Bank Purchase Plus credit card currently offers the longest interest-free period while allowing you to accumulate points to save money in the future.

Its zero per cent on purchases offer is for 20 months and cardholders earn 1 point per pound spent in store, or 3 points per pound spent if you are an M&S Club Rewards member.

The only card offering a longer zero per cent purchase offer is Tesco Bank with its Clubcard Plus credit card. This gives you 24 months interest-free on purchases whilst earning 1.25 points for every £1 spent in store.

However, this offer is only open to Clubcard Plus members at a cost of £7.99 per month. If you’re already a member, this card is worth considering.

Santander’s ‘All in One’ credit card has a 15-month interest-free purchase offer and up to 0.5 percent cashback on spending. However, it comes with a monthly fee of £3.

The HSBC card, which has 20 months interest-free, offers £25 cashback when you spend or transfer a balance over £100 before December 16.