Credit Card Canada - Canadian Credit Card Reviews and Applications

No Interest Credit Cards

No interest credit cards, or zero per cent credit cards, are cards that charge zero percent interest for a short period. The no interest element is either for a balance transfer or it is for spending. It is never for both. If the no interest offer is for a balance transfer then it will only apply for the balance transfer, it will not apply for spending, which will be charged at a normal rate for credit cards. On the other hand a no interest spending card will only let the spending be interest free and any balances transferred will be charged.

There are also other types of spending on which interest is charged which will be charged at a higher rate. This includes cash advances, which are almost never included in the zero interest categories. Cash advances don’t just have a high interest rate but they also do not tend to have a grace period, which means that the interest is charged from the day in which it is advanced. Cash advances do not just include cash that is taken out of an ATM, but also cash withdrawn through a credit card cheque as well as most transactions on gambling sites.

The different interest rates are also important because of what is known as the “payment hierarchy”. The payment hierarchy is the order in which repayments are set off against various segments of credit card debt. The payment hierarchy almost always dictates that credit card repayments will go against the lowest interest balance first. So if the zero percent offer is on balance transfers, and there has been some spending on the card then the balance transfer will be paid off first with the interest accruing on the new spending.

In every case a no interest card is for an introductory period. This period can range between three months to around twelve months, and there are very rarely introductory periods longer than twelve months. After the introductory period the interest rate reverts to the normal rate. This rate will be a bit higher than similar credit cards.

To maintain the interest free debt it is necessary to switch cards. This has to be done some time before the card offer runs out and the interest rate reverts to the normal credit card interest rate. It pays to be disciplined if a borrower is trying to keep a zero percent interest rate.

Taking out credit cards at a zero percent interest rate and then taking out a second card in good time to maintain the interest rate is known as “stoozing”. This also involves putting money into a high interest savings account to offset the credit card debt. Thousands of dollars have been raised by consumers in this way.

As well as the financial reward it is important to have at least partial savings cover as it may be a case that the credit card cannot be renewed. Credit card offers keep on changing and some of the best offers are withdrawn. On top of this many of these offers are only open to new customers, which in practice often mean customers who have not had any dealing with the financial provider or card company in the last twelve months. It may turn out to be the case that there are no zero interest credit cards.

If there are no other zero interest credit cards it does not matter for a person who has built up a savings account as they can pay off the amount and wait until the cards start to get offered again. For a person who needs to put this money into another credit card or on to a loan then the interest on this loan will often wipe out any savings.

The credit history can be affected by a number of cards being applied for over a short period of time, and it is often the case that applying for a series of zero rate cards will have a minor effect on a credit rating.

An alternative to zero percent cards are stable low interest cards which do charge interest but at a predictable and low rate. These are better for the less organised.