0% Credit Cards
These days, credit cards in the UK are competing with each other on two
very attractive offers with a headline rate of 0%. These 0% credit cards
will be either balance transfers; introductory purchases offers or a
combination of the two. This article looks at how to get the best out
these types of card and the things to that the credit card companies want
you to do and therefore the things to avoid. There is a school of thought
that believes that these types of card will soon be a thing of the past
as they cost the credit card companies too much profit, as consumers get
wiser to the pitfalls.
A balance transfer credit card is basically an offer of either a zero
interest rate or very low interest rate for a set period. The typical
period is 6 months although there are variations on this and there have
even been some low rates set for the lifetime of the balance. However,
these are becoming rare. Once, the offer period expires then the
outstanding balance reverts to the standard rate on purchases. This is
very important, as at this point the credit card company will hope the
consumer will not take any action and so the company can begin to earn
money on the balance.
A 0% purchase offer credit card has many similarities to the balance
transfer offers. The introductory rate and period are usually 0% and 6
months in the same way as the balance transfer. Also, once the period
expires the outstanding balance is subject to the standard rate on
purchases. It is an important point to note that the introductory rate
does not apply indefinitely on purchases made in the period, but only
applies for the duration of the introductory period.
It is often the case that credit card companies will offer both the
balance transfer and 0% on purchases on the same card. When this is not
the case it is wise to keep balance transfers and purchases separate.
This is because the balance transfer portion of an outstanding balance
will be paid off quicker than the standard rate purchases. Therefore an
increasing portion of the balance will be subject to the standard rate
and the balance transfer portion will decrease at a faster rate. There is
nothing to stop a consumer obtaining a credit card with a balance
transfer and a separate low interest credit card for any purchases to be
made. That way the benefits of the offers are maximised.
In summary the balance transfer and 0% purchase offers can be of great
benefit to the consumer provided that the consumer understands how to use
the offers to their advantage. A degree of discipline is required in
managing repayments. Also, the cardholder should be aware of any
penalties that may cause the offer to be cancelled. Armed with this
knowledge then these cards can be made to work for the consumer, but
remember that when comparing credit cards to pay close attention to the
typical APR, which is, always stated where UK credit cards are promoted.
About the Author
Neil Brown has contributed to many financial sites including business
banking and personal loans.
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