Although you should still take caution when taking out new debt products, credit cards can be a useful form of debt to hold when managed sensibly. In fact, with the credit card arena now somewhat over-saturated in the US, there are now a plethora of providers that offer 0% interest on both balance transfers and purchases for a set period of time.
If that sounds like something you’re interested in, it’s well worth reading our guide on the Best No Interest Credit Cards for 2019. On top of listing the best providers, we also explain how a 0% no interest credit card works, with respect to both purchases and balance transfers.
What is a no interest credit card?
As the name suggests, a no interest credit card is simply a credit card that comes with 0% interest. However, it is important to note that the 0% offer is only available for a set period of time. For example, a financial institution might offer a no interest credit card for 15 months.
This means that as long as you always meet your minimum monthly payments, then you’ll benefit from 15 monthly payment periods that come with no interest. Let’s look at a quick example to see how a no interest credit card typically works.
- Capital One offers a 0% interest credit card for 18 months. You apply for the card and you are approved instantly.
- You purchase an annual train pass that costs $4,000.
- In order to benefit from the full 18 months of 0% interest, you decide to make 18 equal payments of $222.22.
- This means that in effect, you’ve paid back the entire $4,000 over the course of 18 months, without paying a single cent in interest!
As you will see from the above example, by utilizing the benefits of your 0% introductory offer, you essentially obtained financing for free. If you had instead obtained an 18 month loan to pay for your $4,000 train pass in-full, then you would have had to pay interest.
In fact, depending on your individual credit profile, you could have paid anywhere between 6% APR and 36% APR for a personal loan. However, by using a no interest credit card, you paid nothing!
Types of no interest credit cards
If you’re looking to obtain a no interest credit card, then this is typically for one of two reasons. Either you’re looking to obtain the card to benefit from 0% purchases, or you want to use it to transfer balances from another credit card, with the view of cutting your debt interest payments to zero. Let’s explain both of these purposes in more detail.
In the example that we gave in the previous section on spreading a $4,000 train pass payment over 18 months, this would fall within the ‘0% Purchases’ category. As the name suggests, the overarching aim is to purchase goods and services on credit, without paying any interest. As great as this sounds, it is crucial that you understand how the process works.
💳 Eligible Purchases: First and foremost, you need to ensure that your no interest credit card purchases are being used on the right products and services. Typically, purchases can be made online, in-store, or over the phone. It is always worth checking the terms and conditions of the credit card before taking it out, just to make sure your desired purchases qualify.
💳 Never Withdraw Cash: Although your no interest credit card is likely to come with a cash credit balance – meaning that you can withdraw money from an ATM, you should avoid this at all costs. In the vast majority of cases, a cash withdrawal does not count as a purchase and thus, you WILL pay interest. In fact, this usually costs in the region of 3% of the amount withdrawn.
💳 Always Pay the Minimum: In order to benefit from the full 0% interest-free period, you still need to ensure that you always make the minimum monthly payment. This will vary from provider-to-provider, although it typically averages the greater of 1% of the outstanding balance, or $25. Take note, if you do miss a payment, then it is all-but certain that you will lose your 0% interest offer, and instantly revert to the standard APR rate.
💳 Best for Large Purchases: Although there is usually no minimum purchase amounts that needs to be considered, you are best off using your 0% interest offer for larger purchases (unless the card comes with cashback rewards). For example, rather than using your 0% interest credit card on daily expenses such as groceries or transportation, you would be best off using it for things such as a car, home improvements, or to pay for an annual sporting season ticket.
0% Balance Transfers
The second purpose that no interest credit cards can be used for is to transfer balances from other, interest-bearing credit cards. In effect, this is a highly useful mechanism for the purpose of debt consolidation.
💳 Debt Consolidation: If you are currently holding multiple debts with multiple credit card providers, a 0% balance transfer is a smart option to consider. You effectively pay your outstanding balances off in-full, and subsequently transfer the debt to your newly obtained no interest card card. However, as you are benefiting from 0% interest for a set period of time, you can stop paying interest with immediate effect.
💳 Assess Introductory Period: Unlike purchases, you will only have a set amount of time to engage in a balance transfer. In most cases, this will average 60 days from the date you are approved for the card, although some providers do offer slightly more time. If you fail to transfer your balances within the stipulated time period, you’ll no longer benefit from the 0% balance transfer offer.
💳 Check Balance Transfer Limit: Often overlooked, you also need to check what percentage of your credit card limit can be used on balance transfers. This is usually around the 90% mark, meaning that a $10,000 credit limit would allow you to make $9,000 in balance transfers. Ultimately, you want to obtain a no interest credit card that comes with enough credit to clear your outstanding credit cards in-full.
💳 Balance Transfer Fee: In most cases, you will need to pay a fee to transfer your outstanding balances over to your no interest credit card. This typically averages 3% in the US, meaning that a $5,000 balance transfer would cost you $150. The good news is that some credit card providers now offer zero-fee balance transfers, although this usually comes with a shorter 0% interest period.
Criteria used to rank the best credit cards
❓ Only 0% credit cards are considered
❓ Credit cards that come with a credit limit of at least $5,000+
❓ How much of your credit limit can be used on balance transfers
❓ How many months the 0% interest offer lasts for
❓ How much APR you will pay once the offer expires
❓ What credit profiles the card is suitable for
Top 5 no interest credit cards
The vast majority of no interest credit cards are suitable for borrowers with a credit score of either ‘Good’ or ‘Excellent’. Anything below this and you likely won’t qualify.
It is now common for credit card providers to execute the initial application process on a soft credit check basis. This means that you get to view your “Pre-Approval” rates without the search being posted to your credit profile. It is only when you actually proceed with your offer that the main three credit agencies will be made aware of the application.
Although offers come and go on a frequent basis, at the time of writing the longest 0% interest period on purchases is 18 months. You can get this on both the HSBC Gold MasterCard and the U.S. Bank Platinum Visa.
Once again, each credit card offer will only last a certain period of time. However, at the time of writing, the longest 0% balance transfer credit card available is the 21 months offered by the Citi Simplicity card.
Most no interest credit cards come with a balance transfer fee of between 3% and 5%. Although some providers do offer balance transfers at no fee, this is usually at the expense of a shorter introductory period.
You certainly can. In fact, you can use your credit limit however you see fit. For example, if you are given a $15,000 credit limit, you might decide to use $10,000 to pay off all of your outstanding balances, and the remaining $5,000 to purchase a car.