Tempting as they sound, it’s important to be aware of the different types of cards and offers before deciding what’s right for you.
There are three kinds of 0% interest offers:
0% interest on purchases. These cards offer an interest-free period on purchases, covering anything you pay for using the card during a certain time. Not all cards are created equal. In particular, interest-free periods vary.
0% interest on balance transfers. These cards offer an interest-free period on balance transfers – that’s any money owed on another credit card that you transfer across. Again, the interest-free period will vary and there’s often a fee for balance transfers.
0% on both purchases and balance transfers.
Don’t forget you’ll still have to make minimum monthly repayments on any card to avoid fees. This amount will depend on how much you owe.
Credit cards with 0% interest on purchases can be a good way to spread cost and build up your credit score. For example, you could use one to book flights, pay for a holiday or cover the cost of home improvements and then pay it back in monthly repayments.
If you keep up with your minimum repayments and pay off the balance entirely before the end of the interest-free period, you won’t pay any interest. These interest-free periods can last for over 2 years.
You could also use a credit card with 0% interest on purchases as back-up to cover unexpected expenses, like car repairs or a large bill.
The ideal longer-term option is to build up your own emergency fund with savings to make sure you can cover such costs without taking on debt.
The key thing to consider is the length of the interest-free period. Once this period ends, you’ll have to start paying interest on the amount you owe.
The interest rates that kick in once the introductory offers end can be high. So make sure you’re aware of the Annual Percentage Rate (APR). If you can, aim to pay off your balance completely during the interest-free period.
With this in mind, only spend what you need to on your credit card. The more debt you build up, the more you have to repay and the more interest you’ll incur if you can’t pay it off before the 0% interest period ends.
If you decide a 0% interest card is right for you, it’s worth checking what other benefits or rewards are on offer. For example, some cards will offer cashback and rewards as you spend.
The short – and possibly annoying – answer is that it depends on your circumstances and what you’re using them for.
A 0% credit card could give you more flexibility in terms of how much and when you borrow and how quickly you repay it. If you’re able to repay the debt before the interest-free period ends, you won’t pay any interest.
However, a personal loan may enable you to borrow more money for a longer period, with a fixed interest rate and repayments for the whole time. This may be suitable if you prefer to set the total amount you can borrow and have a pre-defined repayment plan.