Monday Finance: Zero Percent Financing

On Easter Bank holiday Monday one great British national pastime is shopping. Especially for those who had given up shopping for Lent! If you are looking for short-term finance, for whatever reason, one of the weapons in your armoury should be to explore zero percent financing.

Clearly for many things, you would be better off not looking for finance at all. Better to save up until you can afford what you want rather than to borrow in order to buy it. This not only makes more financial sense, it also means that you value your purchase a little more because you’ve had to wait before being able to afford it. I’ve blogged about this previously in A Personal Rant About Personal Debt


However, sometimes it is simply not practicable to save up before spending because life is not that straightforward.  Sometimes, let’s be honest, you want what you want and you want it now not in 3 years time.  And sometimes an opportunity comes up, that is unlikely to come up again, but you don’t have the money to take advantage of it so you need to borrow.

In many cases a loan is the most straightforward way of borrowing.  Interest rates are currently at an all time low and so loans are at their most affordable for years. However, in some cases, particularly where you are  interested for a variety of reasons in paying back irregular amounts, perhaps large amounts at some points and smaller amounts at others, then alternative financing might be worth exploring.

One of the most effective ways of doing this is zero-percent finance via credit cards. The two major types of zero percent financing available in Britain are balance transfers and purchases.

A stack of credit cards

Zero Percent Balance Transfers

There are very few genuine zero percent balance transfer left, because most change a balance transfer fee.  In so doing they transfer your balance form another credit or store card and charge you no interest or a specified period.

One or two providers allow a transfer into a current account which means you could use that money to pay off loans, etc, effectively transferring your loan to a credit card.

The upside is that apart form that fee you have no interest to pay for up to 30 months. If you can pay off your debt within that period then you save yourself a significant amount of interest and have the flexibility of paying different amounts in each month.

Be warned, however, should you fail to pay at lest the minimum payment each month and on time your credit card provider reserves the right to withdraw the zero percent interest offer.

In addition balance transfer cards should NEVER be used for purchases.  Any purchases you make are unlikely to receive the zero percent offer which will largely negate the point of the exercise.

In addition many providers only offer a zero percent transfer for transfers made within a specified period after opening of the account.  So don’t dither if you decide this is the right card for you.


Zero Percent purchases

Zero percent purchases are a different card altogether.  They offer zero percent interest on purchases made for a specified period, up to 18 months.

These are particularly useful if you need to make significant purchases but don’t have all the cash together at the moment. I use this kind of card for my 5YP because I shop irregularly.

I budget a certain amount of my income across the year towards my 5YP comes.  However, I do most of my shopping around the big sales periods post Christmas, post Easter and in the Summer.

So each year I’ve completed most of my 5YP acquisisitons for the year well before I’ve received all my income for the year. A zero percent purchase card is a convenient way of bridging that gap without incurring any costs in doing so.

Credit Card TrapA Health Warning

A serious health warning, however.  Credit cards are by far one of the most easy and expensive ways to get trapped in debt. Therefore, credit card borrowing is not an option for the ill disciplined or disorganised. In addition, credit card providers reserve their best deals for those with spotless credit histories so if you have some poor credit history you may not qualify for the best card offers.

If you are either of these things on matters of finance walk away now. Do not go down this road. However, for those who are neither, this might be an option worth considering.


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