Most banks will only offer a short-term loan with a minimum repayment period of one year, which may, on the face of it sound fine. However what happens if the customer wants to borrow over a shorter period or wants to repay the loan earlier?
With most banks early repayment is not an option or if it is there are punitive early settlement charges and as already pointed out 12 months is usually the minimum repayment period. Remember banks are in the business to make money, the shorter the loan period the less interest they make.
0% on Purchases Credit Card
So what’s the answer? The answer is the 0% on purchases credit card; don’t confuse this with the 0% balance transfer card.
Many credit cards offer, to new customers, an introductory 0% interest on purchases facility although the length of the offer will vary from card to card but can range from 3 –10 months.
It’s worth bearing in mind when a credit card company issues a new card the initial credit limit may not be particularly high, it will in part depend on a person’s credit score. As a rule of thumb a new card might offer around £1,000 — £1,500 as a starting credit limit.
Short Term Interest Free Loan
At this stage there are some questions to be considered. Can the item to be purchased be bought with a credit card? Because almost certainly if the cash amount is withdrawn a hefty charge is made. Can the monthly repayments be met and can the remaining balance on the card be repaid in full within the interest free period? If the answer is yes the customer has in essence a short-term interest free loan.
If the credit card balance is not repaid in full within the interest free period the standard rate of interest rates will kick in, remember the rate will vary depending on the person’s credit score.
Don’t be tempted to repeat this process too many times because a number of credit card applications made within a short period, will adversely affect a credit score.
If there is still a balance left after the introductory period it could be transferred to a new card with a 0% interest rate on balance transfers, so be aware what the best credit card balance transfer options are out there.
0% Balance Transfers
There are some other really important details to be aware of when using credit cards. Some cards will offer a 0% interest rate on purchases and balance transfers. If using both facilities people must be aware that after the introductory rate has finished the monthly repayments will be used to pay off the cheaper debt first, that is the 0% purchases leaving the more expensive debt, the balance transfer, to speedily accrue interest charges while remaining ‘locked in’ until the cheaper debt has been repaid.
The only answer to that is to try to pay more than the minimum payment each month.
This information is obtained from the reputable sources listed below and is offered in good faith. However it’s essential to thoroughly investigate the market before selecting a financial product.