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The Hidden Dangers of Zero Interest Credit Cards

By: Garry Crystal - Updated: 11 Sep 2012 | comments*Discuss
Zero Percent Interest Interest Free

Zero percent interest credit cards are a fantastic credit option for borrowers who can obtain them and use them wisely. But there are a few hidden dangers with zero percent interest credit cards that can come as a shock to account holders.

Benefits of Zero Percent Interest Credit Cards

Zero percent interest credit cards do look like the ultimate deal when compared to most interest charging credit cards. Many lenders offer zero percent interest on credit cards as an introductory offer. Lenders use these offers to entice customers from their usual lenders. The zero percent interest in transfers and purchases on introductory offers will usually last for around 12, months although some do extend to 16 months. Once the interest free period expires, customers will begin to incur interest on account balances.

Benefits of Zero Percent Interest Credit Cards

This type of credit card can be very beneficial for initial purchases or for transferring numerous other debts that come with applied interest. Borrowers who have debts can transfer to zero percent interest credit cards and then clear the balance within the stipulated time period. This can save a lot of money that would otherwise be eaten up in multiple interest payments. Zero percent interest credit cards are also a good idea for consumers making large purchases while spreading repayments over a year. Christmas is another ideal time for credit card spenders to consider interest free credit cards.

The Hidden Dangers of Not Clearing Interest Free Balances

Customers who do open interest free credit card accounts often do so to give themselves some breathing space. Transferring balances to zero percent credit cards means the chance to clear debts with no accruing interest. But the hidden danger, and one that lenders count on, is that customers will not clear their balances before the interest free period expires. If customers do not clear balances the interest will once again be applied and this interest can be high. Balances should be cleared within the allotted interest free period to ensure these credit cards are cost effective.

Don’t Spend on Interest Free Credit Cards

What’s the point of obtaining an interest free credit card if you are not going to spend on it? Customers who transfer balances onto zero percent credit cards should avoid using the card for purchases. This can lead to interest applied to the purchases but this debt won’t be cleared until the cheaper debt is cleared first. This means interest will continue to accrue on the later purchases made, and this can be costly. If this rule does apply it will be included in the credit card agreements terms and conditions.

Never Use Zero Percent Credit Cards to Withdraw Cash

Many people withdraw cash using their credit cards thinking that the zero percent interest rate applies. Withdrawing cash from an ATM using a credit card will come with higher interest rates and will not usually be included as zero percent interest. Interest will begin the minute the cash is withdrawn from the credit card account. Customers should never use credit cards to withdraw cash regardless of the type of credit card. The high interest rates for cash withdrawals mean customers are simply throwing money away.

Zero Interest Offers May Not Always Be Provided

Consumers who do apply for zero percent interest introductory offers may not always receive this rate.Lenders are now very stringent over their lending criteria and just because lenders advertise zero percent interest doesn’t mean customers will receive this rate. Certain factors will come into play such as the customer’s credit rating and the size of transfer balance if this is applicable. Depending on the approval of the lender the customer may receive low instead of zero interest rates.

Use a Separate Credit Card for Spending

One way to avoid interest charges being applied with purchases on top of balance transfers is to avoid spending on the new card. Keeping a separate credit card simply for spending such as making purchases and paying bills will be one way to stop interest on the introductory credit card. It is vital that customers do clear balances before introductory periods expire in order to benefit from these credit cards.

Lenders do apply a range of different terms and conditions to their introductory offers, and interest rates will also vary when they do kick in. Always read the terms and conditions contained in credit agreements to ensure that hidden dangers do not come as a shock.

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