How do interest-free credit cards work?
Interest-free credit cards don’t charge interest when you use them, as opposed to other credit cards and loans that do.
Interest rates are generally given as a percentage, and they tell you how much extra you’re paying to borrow this sum. Essentially it tells you the cost of borrowing. But with interest-free credit cards the borrowing is free, so long as you pay back what you’ve borrowed within the interest-free period.
Making repayments
As there is no interest you could even just make the minimum monthly payments outlined in your credit agreement. However, you should pay off the whole debt by the time your interest-free period ends.
This is because your lender will normally put you back on to their standard variable interest rate, which can sometimes be quite high. Likewise, if you miss too many payments – just one might be enough for some providers – you’ll lose your interest-free benefit.
The average value of credit card purchases was £55.17 in 2018
Interest-free balance transfer credit cards
A balance transfer credit card is something you use to transfer an existing debt to a new credit account. The reason for doing this is that balance transfer credit card generally have low interest rates – and many of them have interest-free periods the could last from months to years.
This can be a useful way to repay outstanding debts without having to pay interest. Learn more with our page on balance transfer credit cards.
Interest-free balance transfer and purchase credit cards
Some providers offer credit cards with zero interest on purchases as well as transferring your existing balance – however it’s likely that the interest-free period will apply to one longer than the other. Read more on our page for balance transfer and purchase credit cards.
Should I get an interest-free credit card?
If you’re thinking about taking out an interest-free credit card, whether it’s for purchases or a balance transfer, consider the pros and cons.
Pros
- Spread costs: if you’re planning a major purchase, an interest-free purchase credit card could be a good way to spread the cost over a length of time without having to pay interest
- Borrow for free: the interest-free period on a purchase card is basically taking out a free loan
- Pay off debts: balance transfer credit cards with interest-free periods can help you pay debts off quicker and more easily
- Consumer protection: all credit cards offer protection for consumers making purchases that cost between £100 and £30,000. Learn more with our guide to credit card protection
Cons
- High interest rates: a drawback to credit cards with interest-free periods is that once it’s over, you’re normally put onto the provider’s SVR (Standard Variable Rate)
- Penalty for missed payments: if you miss a payment – one or a few, depending on the provider – you’ll likely lose your interest-free benefit completely
- Balance transfer fees: if you’re using an interest-free balance transfer credit card there are likely to be fees involved. These can often be given as a percentage of the debt you’re transferring over
How do I apply for an interest free credit card?
Most providers will let you apply for an interest-free credit card through the phone, online, by post, or by visiting the branch in person (if they have one). You’ll need to provide details such as your name, address, financial history, and possibly one or two forms of photo ID.
Who can get an interest free credit card?
Most providers will require you to be over 18 and a UK resident, however the provider will also look at your credit history to determine whether they’ll lend you credit. Learn more about how providers decide who to lend to with our guide to being accepted for a credit card.
Things to consider when applying for an interest free credit card
Before you apply for an interest free credit card, think about:
- Your credit report: whether you’re accepted for a credit card or not is largely determined by your credit report, which lenders use to come up with a credit score. Different lenders have different criteria, so you could very well have two different credit scores with two different lenders, but the likelihood is that they won’t be too dissimilar. It’s up to you to bring your score up, but there are a number of ways to do this – learn more with our guide to improving your credit score
- Soft searches: when you make an application for any kind of credit, be it a credit card or a loan, it leaves a mark on your credit report. One or two applications won’t look bad, but if a lender sees several it could give the impression that you’re badly in need of credit, or that you’re not a responsible borrower. An alternative is to run soft searches using MoneySuperMarket’s eligibility checker – this way you can see how likely you are to be accepted for different credit cards. It’s not the same as an application so it won’t harm your credit report, and it can help you decide what credit cards will be best for you.
Data collected by Mintel, correct as of May 2018
Compare interest-free credit cards
It’s easier to find the right credit card when you compare deals on MoneySuperMarket. Just tell us a little about yourself and your financial situation and we’ll show you a list of interest-free credit cards – tailored to your needs.
Then you can compare deals by the APR (after the interest-free period ends), as well as any rewards or incentives included, and how likely you are to be accepted if you apply. Once you’ve chosen the credit card you want to apply for, just click through to the provider and finalise the deal.
If the provider accepts your application, they’ll send you the card through the post. They’ll set your credit limit and interest rate (this won’t necessarily be the rate advertised, as the APR only has to be offered to at least 51% of applicants), then once you activate your card it’ll be ready to use.
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