Are zero percent credit cards as good as they sound?
With the number of zero percent credit cards available on the market continuing to rise, analysts are increasingly advising consumers to consider whether or not they really need the feature.
While credit card 0% purchases undoubtedly seem like an appealing prospect, more and more people are discovering that they don't necessarily do what they say on the tin.
The first major issue some borrowers have reported is that their bank sets specific conditions on what constitutes a 'purchase'. It might sound unfair, but experts caution that simply spending money does not necessarily qualify cardholders for zero per cent APR on their balance.
Further muddying the waters are credit card zero balance transfer deals. The main purpose of these products is to allow consumers to renew their limited-time interest-free period for outstanding balances, but many banks also incorporate a sweetener in the form of a zero per cent purchases clause.
In addition to the well-publicised transfer fees which tend to put a dampener on these deals, independent financial advisers are keen to stress that 'tiered interest repayment structures' typically ensure that new purchases in fact end up being anything but interest-free.
The reason for this is that when your purchase offer ends - usually within three months after taking out your new card - any new purchases you made over that period will be added to your original transfer balance. But because the banks' tiered repayment system ensures that free and cheap debt is always paid off first, your latest borrowing will accrue a high-rate of interest until that entire original balance has been settled. And for the vast majority of people in need of a balance transfer deal that's not going to be any time soon.
However, for consumers who are largely clear of debts - and who are certain they'll be able to fully pay off their balance before the end of the promotion - there's no reason not to make the most of a zero per cent purchases deal.
Analysts note that for the savviest of spenders they can even lead to cash savings. Purchases on food-shops, for example, can actually notch up discounts and cash-back deals for people who have taken out their card with their local supermarket bank such as Tesco or Sainsbury.
Offering an even more lucrative return is the cheeky-but-entirely-legal tack of whacking all your outgoings on a zero per cent card while bunging the money you would have used to fund them into a high-interest earning savings account such as an ISA. Come the end of the promotional period you'll then be able to pay off your outstanding balance and still have a modest-but-welcome bounty in your savings account.
One final option (for really big spenders only) is to take out a lifetime zero interest rate card. With hefty minimum monthly spending quotas, however, these are ill-suited to many borrowers - the vast majority of whom would be well advised to pay off outstanding debt before exercising the utmost caution for any subsequent zero per cent purchases deals.
