Can you really borrow money for free? While that sounds too good to be true, an interest-free credit card could help you do just that.
If you’ve come across an interest-free credit card offer, you might be wondering what that means exactly. From how it works to how you can borrow for free, we’ve covered all you need to know about interest-free credit.
What is an interest-free credit card?
An interest-free credit card allows you to spread the cost of payments without paying any interest.
The interest on credit cards is how much it costs you to borrow money. Interest is calculated by how much it would cost you to spread the cost of a purchase over an entire year – this is represented as the APR (annual percentage rate).
If the APR is 0%, your credit card is interest-free. This means that you’ll simply repay what you’ve borrowed without any added cost.
It’s important to remember that 0% APR credit cards usually offer interest-free spending for an introductory period only. This can be anything from a few months up to a few years – once the interest-free period ends, you’ll start paying interest on your remaining balance and any future purchases.
Take advantage of your interest-free period
Believe it or not, even if you don't have a 0% APR offer, your credit card could still come with an interest-free period. Yes, really!
This is because many credit cards only start to charge you interest after around 56 days. So, if you pay off your balance in full when your statement becomes available, you won’t need to pay a penny in interest – no matter what your APR looks like.
This could come in handy if you wanted to spread the cost of a purchase over two months without paying any additional cost.
Some credit cards have longer interest-free periods
While all credit cards come with that handy interest-free zone, other credit cards offer considerably longer interest-free periods. These cards are marketed as interest-free cards and you’ll be able to enjoy interest-free spending for several months or even years.
With this type of credit card, you can spend without paying any interest until the promotional period ends. These cards are often reserved for people who have fairly good credit scores and a track record of responsible borrowing.
What happens when the interest-free period ends?
If your credit card has an interest-free period, it’s likely that this will come to an end at some point. You’ll see what the regular APR will look like when you apply for the card, so you shouldn’t be hit with any nasty surprises once the interest-free period ends.
Once the interest-free period ends, you’ll start to pay interest on your remaining balance – so if you’ve racked up a big balance, it could be worth reducing this down or clearing completely before that time comes. You’ll also start to pay interest on any future transactions, so it might be the time to look at other credit card deals to see whether you can bag a better deal.
How does the interest-free period on a credit card work?
The interest-free period means you don't have to pay interest for the time the lender states, but you'll be charged their standard rate if the period ends and you haven't repaid everything you owe.
In the interest-free period, you can spread the cost of purchases over a longer time without racking up interest fees. It’s a good idea to make sure these purchases are paid off before the promotional period ends, though.
Can I get an interest-free loan?
Not really. With loans, you’ll always have to pay some form of interest rate. However, you can find interest rates that are much lower than the cost of credit cards – with some starting from as little as 0.1%.
Instead of a loan, you could look into the ‘money transfer’ method as a way of getting a 0% cash loan. With a 0% money transfer card, you’ll pay a one-off fee to transfer the credit balance into your bank account. That way, you can use the cash without paying any interest at all.
Article continues below
Apply with confidence
Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.