Are the days of 0% credit cards numbered?

While mortgage and personal loan deals have taken the brunt of the global financial crisis with the availability of competitive deals decreasing, the credit card market has remained comparatively steady. However, when a major provider such as Capital One announces it is withdrawing its 0% balance transfer deals from the market, consumers become understandably nervous.

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Capital One has been among the leading players in the interest-free credit card market for more than half a year and for much of this time has offered the longest 0% deal in the country – a position it recently lost to Virgin. Its withdrawal from the market represents a change in product strategy from the company as it focuses on tying-in customers over longer periods with a series of low rate offers.

However, rather than signalling a death-knell for the 0% deal, Capital One’s move may actually present customers with greater choice and flexibility. We look at the future of the credit card market in more depth in our latest expert video.

What deals does Capital One offer now?

Capital One is focusing on longer term balance transfer offers which are still highly attractive and arguably better options for some users – you are charged interest but at a much lower rate than the standard rate on most cards and they can even be seen as an alternative to personal loans. 

The best interest-free offers on balance transfers last for around 12 months, although the Virgin card is currently offering 16 months at 0%, but if you have a large debt it may not be possible to clear it within that time. A card charging a low rate of interest for a longer period, may therefore be a better option as it gives you more time to clear your debt, without having to worry about moving it from one interest free deal to another.

The Capital One Fixed Rate Card for example, charges an annual rate of 8.5%, which is fixed until August 1 2012 with no balance transfer fee meaning that there is no additional cost added on to your debt. The card offers the same 8.5% rate for both purchases and balance transfers so customers should not fall victim to the negative payment trap in which providers clear the cheapest debt first, leaving you accruing interest at the highest rate – for more details on this, check out our article 'the interest-free credit cards that may charge you interest'.

In addition, Capital One offers the Platinum Card with balance transfers fixed at 5.5% until Jan 1 2011 with a 1.7% balance transfer fee; and the Low Rate Balance Transfer Card with No Balance Transfer Fee, which has a rate of 6.5% until Jan 1, 2011. Both of these deals offer 0% on purchases until May 1 2009 and so should not be used for additional spending.

Of course Capital One is not the only provider to offer low rate deals. The most competitive deal in this category is Barclaycard Simplicity with a rate of 6.8% on balance transfers and purchases with a 2.5% handling fee.

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What if your debt is smaller?

If you are confident you can clear your debt within a year or so, then 0% balance transfer deals remain the best option – they can reduce your outgoings, reduce the overall interest paid and cut the time it takes to repay the debt.

The Virgin Credit Card offers the longest 0% balance transfer duration in the UK at 16 months with a 2.98% fee and a typical standard rate of interest of 16.6%. This gives you 16 months in which to chip away at your debt without paying additional interest – although you should be careful not to spend on the card as the 0% purchase period is much shorter at six months.

And despite Capital One’s departure from this area of the market, a new card from Halifax Bank of Scotland (HBOS) indicates that providers look set to continue offering competitive interest-free deals. HBOS’ new card, which is available under both the Halifax and Bank of Scotland brands, has a 0% rate on balance transfers that runs for 15 months. There is a 3% balance transfer fee and you’ll be charged a typical rate of 16.9% on any purchases you make. This places it just narrowly behind Virgin in the best buy tables, effectively filling the void left by Capital One. Other attractive deals are available from the likes of Egg, which offers 0% until February 1 2010 with a 3% transfer fee and a typical rate of 16.9%.

If you plan to keep spending on your credit card then seek out a deal with an equal 0% period on both purchases and balance transfers. The Halifax One Online Special is one of the most competitive with 10 months interest free, with a 3% balance transfer fee and a typical rate of 15.9%.

However, if you have defaulted on payments in the past then chances are your credit score will be below the excellent rating needed to secure these market-leading leading deals. If that’s the case then use our Smart Search tool – this will give you a rundown of the credit cards you’re likely to qualify for based on a snapshot of your credit profile.

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

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