Types of interest-free credit card
An interest-free credit can mean different things depending on what you're looking for. Here are the five man card types and features that can mean you avoid interest. Below we look at each in more detail.
0% interest credit cards (ongoing rate)
0% interest rate credit cards (intro offers)
0% balance transfer credit cards
Cards with a high number of interest-free days
Credit cards with 0% interest on selected spending
0% interest credit cards (ongoing rate)
These are no-interest credit cards where the 0% rate is a permanent feature of the card. You should never pay any interest on these cards.
But having one of these 0% interest credit cards is not a free ride. Instead of interest, you’ll likely pay a monthly fee for using the card. The monthly fees can range from $9-$30, or $108-$360 per year depending on the limit, so they are not particularly cheap and tend to be light on other perks.
Is a 0% interest credit card with a monthly fee a good deal?
Pros
- There's no interest charged, so there's an upper limit on how much the card will cost you.
- These are simple cards that are relatively easy to compare to one another.
- Low maximum credit limits mean there is a cap on how much debt you can build up.
- Some of these credit cards come with no international transaction fees.
Cons
- You’ll pay a monthly fee if you use the card at all. Over a year this can add up the equivalent of (or more than) the annual fee on a standard credit card.
- Most of these cards don’t offer the kinds of perks you usually associate with credit cards, like rewards points.
- They offer limited card functionality, e.g. some don’t allow cash advances, balance transfers or the option to add extra cardholders.
Expert tip on 0% interest credit cards
Brad Kelly, Credit Card Expert
Zero interest does not mean zero cost. Consider if a low rate card is better for you if you intend to roll over a small balance each month. In many cases, this will be a lot cheaper than these low-limit cards that charge a monthly fee.
Brad Kelly, Credit Card Expert
0% interest rate credit cards (intro offers)
Another option for an interest-free credit card is one with a 0% introductory offer on purchases. These are essentially standard credit cards with a special offer attached.
You’ll pay no interest on purchases for an initial period (current offers range from 6-15 months) but then the card reverts to the standard interest rate.
You still need to make the minimum repayment during the interest-free period. If there is an outstanding balance on the card after the interest-free period, you’ll start being charged interest.
Is it a good idea to get a credit card with a 0% interest introductory offer?
Pros
- You’ll save on interest while still having access to any perks offered by the card, such as cashback, rewards points and complimentary credit card travel insurance.
- It can work well if you have a large one-off purchase to make, allowing you to pay it off interest-free within the introductory period.
Cons
- The interest-free period is temporary and there is often a relatively high revert rate. The lowest rate credit cards rarely offer an introductory no-interest period.
- You’re usually still charged interest on cash advances (e.g. withdrawing cash) and card fees may still apply.
0% interest balance transfers
Another way to pay no interest on a credit card is to take advantage of a 0% balance transfer offer. This involves switching the balance of an existing credit card to a new one that offers an interest-free period on the transferred balance for a limited time – usually 6 - 24 months depending on the offer.
The no-interest period applies to the existing balance only (not new purchases).
Is a 0% balance transfer offer a good way to pay no interest on a credit card?
Pros
- Can help you pay down existing debt by giving you a no-interest period on your balance.
- There are often generous 0% offer durations available – e.g. two years or longer.
- A 0% interest balance transfer offer gives you a set time-frame (offer period) for paying down debt.
Cons
- You’ll be charged interest on any new purchases, often with no interest-free period.
- Once the balance transfer offer expires, the interest charged on any remaining balance is usually quite high.
- Some cards charge a balance transfer fee (e.g. 1-2% of the balance) as well as the usual card fees.
Credit cards with 0% interest on selected spending
A handful of cards offer 0% interest but only on selected purchases. Latitude and Humm are the most prominent examples of providers who structure their offers like this.
- With the humm®90 Platinum Mastercard you can convert purchases of over $250 into an interest-free instalment plan over 9-15 months.
- With the Latitude GO Mastercard and Latitude Gem Visa you can pay off payments at certain retailers only using an interest-free payment plan.
Are these limited interest-free offers any good?
Pros
- Can be handy for large purchases allowing you to spread the cost without paying interest.
- These offers are generally a permanent fixture of the card.
Cons
- There may be a fee attached for accessing the interest-free payment plan.
- If you don’t make the minimum required repayment, the penalty fees and interest can be very expensive.
- Value of the offer will very much depend on the partner retailers included.
Credit cards with interest-free days
You can also avoid paying interest on a credit card by using the card’s interest-free days. This is a key feature of how most credit cards work.
It's a period of time after you make a purchase using your card during which no interest is charged.
Most credit cards come with interest-free days (55 days is by far the most common amount Money.com.au analysis shows). At the start of each credit card statement period, the interest-free days start counting down.
The key here is always paying off the balance of your credit card in full every month. If you do that, you should never pay interest on your credit card.
Here are the credit cards in Australia offering the highest number of interest-free days:
- humm 90 Platinum Mastercard - up to 110 days
- Beyond Bank Low Rate Visa Credit Card - up to 62 days
- People's Choice Visa Credit Card - up to 62 days
- Bank of us Visa Credit Card - up to 58 days
- Summerland Bank Low Rate Card - up to 56 days
- Summerland Bank Rewards Credit Card - up to 56 days
How much could you save with an interest-free credit card?
How much you could save with an interest-free credit card will depend on your card balance and the interest rate you would otherwise be paying if you didn’t have the benefit of a 0% interest rate.
But let’s look at a simplified hypothetical example based on the average credit card balance in Australia (approximately $3,000) according to the Reserve Bank of Australia. We’ll compare the interest-free scenarios to the current average credit card rate of 18.62% p.a. and assume the cardholder is aiming to pay off their balance within one year.
| 0% interest credit card (12 month offer) | Ongoing 0% card with monthly fee | Credit card with 18.62% interest | |
|---|---|---|---|
Starting balance | $3,000 | $3,000 | $3,000 |
Monthly repayment to clear balance | $250 | $270 | $276 |
Monthly card fee | n/a | $20 | n/a |
Total interest paid | $0 | $0 | $312 |
Total fees paid | $83* | $240 | $83* |
Amount saved | $312 | $72 | $0 |
How to get the best interest-free credit card
Longest interest-free period
All other things being equal, a longer interest-free period will be better as it gives you more time without interest charges applying. But all other things are rarely equal, so don’t rely on this factor alone.
Lowest revert rate
This is the interest rate that will apply once the no-interest offer period ends. It’s usually the card’s standard purchase rate. But on a balance transfer offer, you may be hit with the higher cash advance rate.
Low fees
For a lot of people, fees (not interest) are the biggest cost of having a credit card. A credit card with high fees will still be expensive even if it's interest-free. Look out for annual/monthly fees, balance transfer fees, late payment fees, cash advance fees, foreign exchange fees and fees for adding extra cardholders. For example, an ideal scenario could be a no annual fee credit card that also helps you save on interest.
Rewards
If credit card rewards (i.e. points) matters to you, keep this in mind when comparing no-interest cards. Most cards with an ongoing 0% interest rate don’t offer rewards but some 0% offer cards do. Just don't be surprised if there's a high revert rate when the 0% offer expires.
Interest-free days
This is also important to factor into your comparison. Once the 0% interest period on a card ends, the interest-free days become your way to avoid interest. The more days, the better.
Extra perks
It’s no harm to keep an eye on the extras that often come with credit cards. This is likely not going to be your priority if you’re looking for an interest-free card, but you could still manage to nab some nice perks – like complimentary travel insurance on frequent flyer credit cards.
