Choose the right credit card, and you could bag yourself an interest-free loan lasting up to a year.
In an ideal world, none of us would be spending money we didn't have. Instead of taking out loans and spending on credit cards, we would all have carefully budgeted for upcoming expenses. We would also have nice chunky savings cushions to protect against the unexpected.
That's a lesson the current economic crisis has (hopefully) driven home. But at the moment, we have to cope with the reality we're stuck with. If a loan is a genuine necessity, you need to find the cheapest possible option to suit your needs - and that's where the right sort of credit card can help.
0% purchase cards - the facts
Some credit cards, known as 0% on purchases cards, offer interest-free deals on new spending for set periods of time.
Providing you clear the balance before your 0% deal expires, this means borrowing on this sort of card is much cheaper than taking out a personal loan (the cheapest personal loans on the market currently charge interest of around 8%).
The important thing to remember is that a 0% purchases card is only a short-term loan solution; at the moment, no 0% purchase deal lasts longer than a year.
When the 0% deal comes to an end, you'll be dumped onto a rate of interest (typically around 17% APR) much higher than a loan would charge you. Don't let that happen to you!
The front runners
Here are some of the longest 0% purchase deals currently on the market
|
Card |
0% purchase period |
0% balance transfer period |
Typical APR |
Need to know |
|
Tesco Clubcard MasterCard |
12 months |
Six months (2% transfer fee) |
16.9% |
When paying with this credit card, you'll collect five Clubcard points when you spend £4 at Tesco, and one Clubcard point when you spend £4 elsewhere. |
|
First Direct Gold card |
12 months |
N/A - you get 5.9% APR on balance transfers for five years (2.5% transfer fee) |
16.9% |
This card is only available once you have become a First Direct 1st Account holder. |
|
Marks & Spencer Money MasterCard |
10 months |
Six months (2% transfer fee) |
15.9% |
There are various bonus deals on M&S points when you spend on the credit card in store - details here. |
|
Nine months |
Nine months (3% transfer fee) |
15.9% |
|
The length of the 0% purchase period will obviously play a big part in your decision - but there are plenty of other factors you need to take into account.
Let's look at each of these cards in more detail:
Tesco Clubcard MasterCard
No card offers a longer 0% spending deal than the Tesco Clubcard MasterCard. You get interest-free purchasing for a full 12 months, making it perfect for gradually paying back big expenses.
For example, my lovemoney.com colleague John Fitzsimons recently outlined how he plans to use this card to spread the cost of his wedding.
And if you already shop at Tesco, you'll appreciate the extra Clubcard points this card allows you to build up. You'll collect five Clubcard points when you spend £4 at Tesco, and one Clubcard point when you spend £4 elsewhere.
So - if you're looking for a card for interest-free borrowing only (rather than balance transfers) this card would be my top pick.
First Direct Gold card
The only other credit card currently offering 12 months of interest-free purchasing is the First Direct Gold card.
The very large string attached here is that you can only apply for this card once you have become a First Direct 1st Account holder. The Tesco card offers the same length of deal without this tie-in, so it would always be my first choice of the two.
However, there are certain, very specific circumstances in which the First Direct card may be the right choice for you.
For example, if you already have a Tesco credit card, you won't be able to apply for the Clubcard MasterCard deal I've outlined. In this instance - if you were already planning to take out a 1st Account with First Direct - the Gold card may offer you a suitable 12 month alternative.
Just be very sure the 1st Account is right for you. There's no point in jumping through hoops to get a great 0% purchase deal if those hoops then hamper you in some other way!
Marks & Spencer Money MasterCard
If you've already got a Tesco credit card and you don't want to get heavily involved with First Direct, the next longest 0% purchase deal comes from Marks & Spencer.
The Marks & Spencer Money MasterCard offers interest-free spending for 10 months, as well as the opportunity to earn extra M&S bonus points if you spend on the credit card in store.
Halifax All in One MasterCard
There are now several credit cards that offer 0% on purchases for nine months. The reason I've picked out the Halifax All in One MasterCard is that it also offers a great deal on balance transfers.
Let me explain: I wouldn't recommend using either the Tesco or the M&S card for 0% balance transfers - despite the fact that they both offer 0% on transfers for six months.
This is because they operate negative payment hierarchy. In a nutshell, this means that the most expensive debt (that charging the most interest) stays on your card the longest, and is only paid off when the rest of your balance has been cleared.
A balance transferred to either of these cards will start racking up interest after six months, and that total balance transfer debt will remain on your card until all your new purchases debt has been paid off. Urgh!
However, with the Halifax card, the 0% purchase and 0% balance transfer periods last the same period of time (nine months) and that means negative payment hierarchy doesn't apply.
So, if you have an existing balance to transfer and you want to borrow more, this card offers a single 0% solution. Just make sure you can clear the total balance before the nine months is up!
More: Credit cards that make you money | Demolish your credit card debt
Compare credit cards with lovemoney.com or get a free credit report from Experian