Credit Building > How do 0% interest credit cards work?

How do 0% interest credit cards work?

Wollit Team2 minute read · Updated 30th June 2024

A 0% interest credit card, also known as an interest-free credit card, is a type of credit card that charges no interest on balances for a set period of time.

How do interest-free credit cards work?

Zero-interest credit cards can be pretty useful if you know how they work:

They offer 0% interest on balances for a pre-determined time frame, usually 6 to 24 months.
0% interest cards can be used for balance transfers, purchases, and even money transfers during this promotional period.
If you clear the debt before the end of the 0% period, you won't pay any interest, and the credit will essentially be free.
The 0% period also gives you time to pay off the debt without accruing additional interest charges or fees.
Another advantage of using a 0% credit card is that it may provide Section 75 protection for purchases between £100 and £30,000. This protection can help you get a refund easily if the item arrives damaged or faulty.

In other words, if used responsibly, a 0% interest credit card can save you quite a bit in interest charges compared to a regular credit card.

The key here is to make sure you pay off the full balance before the 0% promotional period ends to make the most of it.

What are the risks of 0% interest credit cards?

Zero-interest credit cards are great and can be very helpful, but you need to use them carefully. Otherwise, you might end up in a situation worse than before.

Here are some things to watch out for:

The duration of the 0% interest promotional period. As you can imagine, the 0% interest rate is meant to attract new customers. Once this period ends, you'll be charged the standard interest rate, which is usually quite a bit higher.
Credit limit. Your credit card will always have a credit limit. If you go over it, you'll have to pay additional charges and might end the 0% interest rate period. It will also hurt your credit score.
Making the minimum payments. If you fail to make the minimum monthly payments on time, you will also lose the 0% interest benefit.

If you can't pay off the entire balance on your 0% credit card before the interest-free period ends, you should look into a balance transfer credit card. These allow you to transfer your credit card debt from your current provider to a new card, and the new card won't charge any interest for a certain period.

This will give you more time to pay off your debt without accruing interest charges. However, make sure you have a plan in place to pay off the balance before the interest-free period on the new card ends. Don't let debt spiral out of control.

Can I get a 0% card with bad credit?

While it's possible to get a 0% purchase credit card with poor credit, your choices may be more limited, and the 0% interest period may be shorter than what's advertised for those with good credit scores.

You should also keep in mind that any kind of card will have a zero-interest period, even credit building cards for people with bad credit. This will usually be limited to 40-60 days, but it's still worth keeping in mind. If you manage to pay the bill in full and on time, your purchases will still be interest-free.

If you want better options, though, you'll have to work on your credit score.

For an alternative to a credit card, consider a credit-building app like Wollit. Wollit is an app that reports your monthly fixed fee subscription as loan repayment to the credit reference agencies. This means that Wolit helps build your credit history and gives you a chance to improve your credit score while keeping you safe from unexpected high interest charges or other fees.