How do 0% interest credit cards work?

A 0% interest credit card is a type of credit card with a 0% interest rate for an agreed period of time, which is known as the introductory period. This can be a few months or years, depending on the terms and conditions of the card.

If you make the minimum monthly payments and pay off your card debt before the interest-free period ends, you won’t pay any interest. However, you may pay a fee for any balance transfers or money transfers – this is usually between 1% and 5% of the amount transferred. Once the interest-free period ends, standard rates will apply on any remaining balance.

Let’s take a look at some of the advantages a 0% interest card offers, and what you need to know about them.

What’s meant by 0% interest?

There are different ways 0% credit cards can work. They may offer 0% interest on purchases, 0% interest on balance transfers, or 0% interest on money transfers. Some cards will offer a combination of these – these are sometimes known as 'all-rounder' credit cards.

0% interest on purchases

If a credit card offers 0% interest on purchases, it means that whenever you make new purchases with it, you won’t be charged interest on the purchase amounts during the introductory period, as long as you make the minimum monthly repayments.

This makes it a good way to spread the cost of your purchases over the introductory period. Once the introductory period ends you will have to pay interest on any remaining balance.

Usually, you can make multiple purchases on your credit card during the introductory period, provided you don’t go over your credit limit. But take care – if you find that you’re regularly using your card to borrow, this can quickly spiral out of control. The more debt on the credit card, the more you will have to repay before the interest-free period ends and interest is charged.

0% interest on balance transfers

If a credit card offers 0% interest on balance transfers, it means that you can transfer credit card debt from an existing credit card or store card to it, so you’ll owe this amount on your new card. And you won't be charged interest on the transferred balance during the introductory period, as long as you pay it off within the agreed period.

A balance transfer fee usually applies – this will likely be a percentage of the amount you transfer, with a minimum fee.

In order to get the 0% offer on your balance transfer, you may need to make the transfer within a certain time period of opening the account, which is known as the initial period. Check the terms and conditions to make sure you know when to make the transfer by.

Please note that the 0% interest only applies to the amounts transferred during the initial period. It doesn’t mean you can repeatedly transfer balances from other cards to your credit card and pay 0% interest.

Also, you usually can’t transfer balances in this way between two credit cards with the same bank or banking group.

0% interest on money transfers

If a credit card offers 0% interest on money transfers, it means you can transfer money from your credit card to your current account, and you won’t be charged interest on the amount transferred, as long as you make the minimum monthly repayments. Once the interest-free period ends, standard rates will apply on any remaining balance. The standard rate for money transfers is usually higher than other standard rates, so make sure you check this carefully before making a money transfer.

Money transfer credit cards usually have a one-off fee to transfer money from your credit card to your current account. This is normally a percentage of the amount you transfer.

Can I simply ignore my debt during the interest-free period?

No, this is a mistake some borrowers make with 0% interest cards. You still need to make monthly minimum payments by the set date each month. If you don’t, you will likely be charged a late payment fee, which goes on your credit record and may affect your credit score.

Consider paying off more than the minimum repayment if you can. If you only pay the minimum each month, it will take you longer to pay off the debt and you may not clear it before the interest-free period ends. That means you’ll start paying interest at the standard rate, which is often higher than it would be with a card that charges interest from the start.

Can I make cash withdrawals with a 0% interest credit card?

As with most credit cards, if you a make cash withdrawal from an ATM with your credit card, you’ll usually have to pay interest, and usually at a higher rate than the standard interest rate for purchases and balance transfers. This starts on the day you withdraw the cash and continues until you pay it off. What’s more, you’ll usually have to pay a cash withdrawal fee – this could be either a fixed amount or a percentage of what you withdraw.

Of course, how you use your card is ultimately up to you. However, it’s important to be aware of the costs of this type of borrowing. Using your card to make a lot of cash withdrawals can also have a negative effect on your credit report, as it may lead lenders to assume you are low on funds.

Can I use a 0% interest credit card abroad?

If you’re planning a holiday and want to exchange your currency in a currency other than sterling, this will come with currency exchange charges. If you want to withdraw cash from an ATM, you’ll have to pay the cash withdrawal charge in addition.

The Co-operative Bank 0% Balance Transfer credit card

Here at the Co-operative Bank, we offer our own 0% Balance Transfer credit card.