118 118 Money’s ‘no interest’ credit card: what’s the cost?

A credit card that's interest-free-for-life and even available to people with a poor credit rating sounds too good to be true – and sadly it is, writes Sam Richardson.

The company that made its money from premium phone lines and pricey loans has launched a credit card that charges no interest payments or fees.

Instead, 118 118 Money customers will be charged a monthly subscription fee, ranging from £8 to £17 per month, depending on their credit limit.

Other than the subscription fee, 118 118 Money says no extra fees will apply to the Mastercard, even for late payments – although this would still damage your credit rating.

Speaking of which, the card is available to those with a poor rating, although these borrowers will be given a lower credit limit of £250.

As customers improve their credit rating they become eligible for an increased credit limit, up to £1,200.

118 118 says a major advantage of their card is that fees and repayments are easier to understand than traditional interest-based credit cards.

Interest-free but expensive

Although 118 118 Money’s card doesn’t charge interest, the cost of borrowing on it is very high

If you borrowed £250 – the typical starting credit limit for those with a poor credit score – and repaid it over a year, you’d end up paying £96 in subscription fees.

This would equate to an interest rate of 38.4%.

Due to the flat fee, if you borrow below the credit limit stated above it's proportionally more expensive. 

Borrowing the highest possible credit limit, set at £1,200, and repaying it over a year, you’d pay £204 in fees, equivalent to an interest rate of 34.5%.

Yet to get that credit limit you’d need to have an excellent credit rating – meaning you could qualify for credit cards with rates as low as 6.4% and long interest-free terms.  

How does it compare?

118 118 Money claims that the subscription model makes their card “an ideal product for those looking to rebuild their credit score”.

Traditional credit builder cards are notorious for high interest rates, yet these cards are generally far cheaper to use than 118 118 Money’s card.

Take the Barclaycard Initial credit card as an example, which has an interest rate of 34.9%.

If you borrowed £250 on this card and repaid it over a year, you’d pay £49.76 in interest; almost half what you’d pay 118 118 Money.

If you were able to pay back your debt even quicker you’d pay less interest, or no interest if you could pay it off every month.

This card does have fees for late payment but used properly it is likely to end up cheaper than 118 118 Money’s offering.

How to get out of debt

If you’re in debt or expect to be, there are much cheaper ways to improve your credit score and reduce what you owe.

Firstly, seek support: here’s where you can get free and impartial debt advice.

A number of providers offer credit builder cards with 0% interest-free periods for new purchases.

Set up a direct debit to repay these cards in full every month and also look at these free ways to improve your credit rating.

Once your credit rating has improved you may be able to access a top balance transfer credit card, giving you up to 36 months interest-free to gradually repay your debts.

You can use loveMONEY’s soft search tool to check your chances of getting a credit card before applying and avoid damaging your credit rating.

Compare credit builder cards and balance transfer credit cards and find the best one for you