If you are searching the markets for a credit card which has no interest permanently, the chances of you finding something like that are quite slim. Credit cards offered by any bank in America, or even internationally tend to have a specific period until which any purchases and transfers would be subject to 0% interest. Although you might be led to believe that these perks are precisely what you need, banks have policies in place which can negate them if you miss out on payments or violate the rules in any way.
Before we dive deeper into the details, there are a couple of background elements that you need to understand before you decide to seal the deal. In the world of finance, the biggest mistake you can make is to go in blind with no prior knowledge of what you are getting into. Like any other decision of your life, it is good to understand the basics and think things through before you make it.
What is an interest-free credit card, and how does it work?
To put it simply, an interest-free credit card gives you the ability to pay back your purchases without incurring any interest. Although, this may seem ideal, you must know that, just like any other credit card, your credit score will be the deciding factor. As stated earlier, banks would offer you an introductory period in which no interest would be charged on any of your purchases. This period may be between three months to 30 months, giving you plenty of time to pay off your balance. Now, this might apply to credit transfers as well, but you need to check with your credit card provider for its applicability.
However, the rule of thumb when dealing with interest-free credit cards is that you need to make the payments on time. If you fail to do accordingly, you will have to pay it off at the standard or penalty APR (annual percentage rate) applicable for your card. Therefore, you need to have a solid repayment plan in place if you’re looking forward to avail the maximum benefits of your credit card.
How does an interest-free credit card differ from a personal loan?
Comparatively speaking, you might be weighing your options on whether to get an interest-free credit card or take out a personal loan. Interest-free credit cards allow you to pay only what you have borrowed, and nothing on top. In contrast, personal loans tend to have interest rates, even if you choose the least expensive ones. To add, you can flexibly repay credit card debt, as opposed to loan repayments which are fixed and need to be paid in full. You can also spend what you pay back in credit cards, unlike personal loans in which only allow you to spend what you had borrowed initially.
However, the main point of difference in which personal loans beat out credit cards is their borrowing limit. Unlike credit cards, which have a set monthly limit to your expenses, you can take out personal loans with a much higher borrowing amount.
The benefits of interest-free debit cards
No interest in the initial period
The fact that you will not be paying interest for the first couple of months makes it great to give yourself some leeway in terms of repayment. Mostly banks offer interest-free credit cards with a range of six to 20 months, allowing you to come up with a much better repayment plan now that the interest variable is gone. The interest-free nature may also apply to other transactions such as balance transfers too.
Ideal to lower balances accruing high interest
In case you have a credit card which has a considerable amount of interest and debt, you can transfer balance to an interest-free credit card to give yourself some breathing room. Large balances left on cards with high-interest rates can increase rapidly, and be a big hassle to pay off in the future. Therefore, by transferring the large balance onto an interest-free credit card, you will be able to make the payments without accumulating additional interest. You will be able to make payments that will directly reduce your debt, and the process is greatly expedited.
Best if used for larger purchases
The interest-free nature of these credit cards makes them a viable option if you want to make any substantial purchases. Not only will you be able to pay it off over a more extended period, but the 0% interest will be a big plus. If you decide to go on a holiday or trip or purchase something expensive such as a TV, the large repayments can become a hassle for standard credit cards. An interest-free credit card allows you to stretch out your payments over the interest-free period, making them significantly more straightforward.
To summarize, an interest-free credit card can be a godsend if you require a credit card to help you with your expenses. The amount of flexibility offered by no interest makes it easy for you to repay using a relaxed strategy. Now, this interest-free period is going to be temporary as stated by its limit, but if you manage your finances appropriately and makes sure to make the payments on time, there is nothing that should hinder you from using this card to its maximum potential. The key aspect here is to think with a cool head and manage your finances carefully.