Buying big-ticket items can be tough for even the most savings-savvy among us. A 0% purchase card can help by providing an extended period to pay a big bill without incurring interest charges.
In most respects, a 0% purchase card is like any other credit card. The difference is in the offer. Use the card, and your creditor will grant you an extended period to pay the balance without charging fees. Say you buy a new washer and dryer. Making the buy with a 0% purchase card should allow you to pay the balance due over six, 12, or even 18 months without incurring interest. Not a bad deal, right?
Types of 0% purchase cards
Options vary widely when it comes to finding the right 0% purchase card. Flavors include:
- Retailer sponsored: Department stores and other big-name retailers are fond of offering cards that promise 0% interest for a certain period in the hope you'll buy more. Beware the fine print: These cards are notorious for charging usurious rates at the conclusion of the promotional period.
- Travel or rewards cards: Some banks will offer 0% purchase cards that extend the promotional rate to all purchases in a certain period.
- Balance transfer cards offering 0% interest on purchases: In this case, 0% on purchases is a feature of a card that's trying to lure you with the promise of a cheap balance transfer.
Typical terms of 0% purchase cards
Interestingly, 0% purchase cards tend to vary by what they require of borrowers.
- No interest, no payments: Some cards do not require you to pay anything until the end of the promotional period, when the lender starts applying interest charges to your balance.
- Deferred interest with a minimum monthly payment: More commonly, creditors require a small monthly payment while interest accrues in the background. Remember, if you don't pay what you owe before the promotional period ends, you'll have to pay the balance plus accrued interest.
What to look for
You're applying for a 0% purchase card to make your dollars go further. So don't just pick the highest-rated card or the one with the most social-media buzz. Hone in on the card that's most likely to help you achieve your financial goals.
Here are three things to note while you shop for a card that'll help you cash in:
- Interest rates following the promotional period: If you plan to pay the balance in full before the end of the promotional period, the interest rate shouldn't matter. However, you should still take note of the rates you'll pay if something comes up and you can't make good. A low, fixed rate is preferable and generally available to those with good credit.
- Fees: Don't accept a card that charges an annual fee. Unless you have abysmal credit, you'll have plenty of fee-free 0% purchase cards to choose from.
- Rewards: Some cards offer miles, points, or the promise of cash back to get your business. That's great if you can get even more back than a 0% loan. But don't be tempted to overspend just to get the rewards. The interest you'll end up paying isn't worth it, but do take advantage if you can pay the charges in full.
Wield your 0% purchase card responsibly
Banks and stores are hoping you'll fail to meet specific terms and conditions when offering you a 0% purchase card, because if you mess up (miss a payment, exceed the credit limit, or break any other rule), then all of the perks disappear, and they start collecting more money from you.
In order to keep the tables turned in your favor, make sure you do the following:
- Read the fine print and watch the clock: Make sure all your purchases fall within the promotional period, and meet any and all requirements to qualify for the 0% rate. Otherwise, you may find yourself paying interest at big rates you hadn't counted on.
- Only buy what you can afford: Sure, it sounds obvious. And yet with millions of Americans in debt and carrying balances month to month on their credit cards, it's obvious many of us fail to follow this basic advice. Don't let that happen to you. Budget before you buy in order to make your 0% purchase card work for you rather than against you.
Like any other financial instrument, a 0% purchase card is a tool. For the savings-savvy among us, it can can help consumers acquire necessary big-ticket items without fronting a lot of cash or agreeing to months or even years of interest payments. For those already in debt, a 0% purchase card provides an easy excuse to keep overspending. Know your financial situation before applying.
Tim Beyers has had WAAAYYYY too many credit cards over the years. He's also a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. Check out Tim's web home and portfolio holdings or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. Tim has no position in any stocks mentioned. The Motley Fool recommends American Express. The Motley Fool owns shares of Capital One Financial and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.