Last night when going through my post I happened upon a missive from the lovely people at Halifax, telling me I was guaranteed to be accepted for a new credit card.
The last time I took out a credit card offering 0% interest on purchases was almost three years ago, before my wedding. Back then the best offer on the market was the card I eventually went for, 12 months at 0%, from Tesco.
The letter informed me that this card from Halifax would also offer me a year off from the pain of interest charges. But is that still a good deal?
Growing 0% periods
A year of no interest is not to be sniffed at, but it's a long way from the best deal in the market these days.
Here are the longest 0% periods on offer today for purchases:
Card and 0% period
18 months
15 months
Marks & Spencer Money Master Card
15 months
15 months
14 months
13 months
13 months
13 months
13 months
13 months
That's ten cards all offering in excess of a year before you face interest charges. There's then a handful of cards offering 12 months, matching the Tesco offer that I went for back in 2009.
That strikes me as a pretty incredible development, that borrowers have such a wide range of cards to choose from, all offering such a long period of 0% interest.
The pros of a 0% purchase card
The reason I went for a 0% purchase card was that I knew I had a lot of spending ahead of me. There were suits to rent, a wedding cake to buy, a DJ to book, and all the other fun stuff that goes with arranging a wedding.
I knew that it would be pretty tricky to pay for all of that in one go. By putting my spending on the 0% purchase credit card, I could spread those payments out over time, safe in the knowledge that every penny of my repayments were going towards reducing my debt rather than on interest payments.
Let's take an example. Say you spend £5,000 on the Nationwide Select card. If you pay £278 a month, that debt will be completely cleared by the time the 0% period finishes.
If you instead spend £5,000 on a normal credit card, with an APR of 19%, then it will take you an extra three months to clear that debt. In total you will pay more than £800 in interest!
So if you know you've got a big purchase ahead of you, going for a 0% credit card is a sensible course of action.
The downsides of a 0% purchase card
There are some hurdles to consider though. As I mentioned in the example above, pay £278 a month and the debt will be cleared by the time the 0% period ends. But what if you don't manage to do that? What if the 0% period finishes and you still have thousands of pounds sat on the card?
You face a couple of options. The first is to do nothing - leave your debt where it is, continue making your monthly payments, and your debt will eventually disappear. That said, you will end up spending a decent chunk of cash on interest.
Or you can move the remaining debt to a balance transfer card, which will also offer a period of 0% interest on your repayments. But you'll have to pay a fee for the privilege.
And then there's the fact that in order to get your hands on a 0% card you'll need to have a good credit record. Credit card providers don't make a habit of handing out these cards to any old borrower – ironically the borrowers who would most benefit from a bit of breathing space in paying off their debts are the ones who find it most difficult to get their hands on 0% cards.
Alternatively, you may find that your credit rating is good enough to get a 0% on purchases card, but not good enough to get the very best 0% card. Halifax is now offering 'tiered 0% deals' where some applicants get 0% cards but with shorter interest-free periods.
Therefore the best way to get a 0% card is to ensure your credit rating is as spotless as possible.
The downsides of a 0% purchase card
There are some hurdles to consider though. As I mentioned in the example above, pay £278 a month and the debt will be cleared by the time the 0% period ends. But what if you don't manage to do that? What if the 0% period finishes and you still have thousands of pounds sat on the card?
You face a couple of options. The first is to do nothing - leave your debt where it is, continue making your monthly payments, and your debt will eventually disappear. That said, you will end up spending a decent chunk of cash on interest.
Or you can move the remaining debt to a balance transfer card, which will also offer a period of 0% interest on your repayments. But you'll have to pay a fee for the privilege.
And then there's the fact that in order to get your hands on a 0% card you'll need to have a good credit record. Credit card providers don't make a habit of handing out these cards to any old borrower – ironically the borrowers who would most benefit from a bit of breathing space in paying off their debts are the ones who find it most difficult to get their hands on 0% cards.
Alternatively, you may find that your credit rating is good enough to get a 0% on purchases card, but not good enough to get the very best 0% card. Halifax is now offering 'tiered 0% deals' where some applicants get 0% cards but with shorter interest-free periods.
Therefore the best way to get a 0% card is to ensure your credit rating is as spotless as possible.
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