Q: I will be making some big purchases in 2013 that I won’t be able to pay off right away. Should I apply for a 0% on purchases credit card, and if so, where do I find the longest offers? Or should I apply for a store card that comes with promotional financing?
A: Be warned… store cards typically use deferred financing promos. That means if you don’t pay off the entire balance before the promo period is up, you will be hit with interest going back all the way to the dates you made the purchases. For this reason, a regular 0% purchase credit card is definitely a better option than a 0% store card.
Where do you find the best 0% cards? I maintain a list which is constantly updated with the top offers right here: best credit cards for balance transfers and purchases. At the time of writing, there were offers up to 18 months at no interest.
The reason banks can afford to do this in 2016 because the Federal Reserve has only raised rates slightly and they still seem to be holding steady for the near term future. The result? Banks are doing these 0% offers for approximately the same amount of time, since they now don’t have to worry about their borrowing costs going up anytime soon.
Store 0% purchase offers further explained…
Many store credit cards are geared towards those with lower credit scores, who may otherwise not be approved for the card deals from major banks. So it should come as no surprise that store cards rarely offer the best financing deals.
However at first glance, a “0% interest for 12 months on purchases” on a store card does sound comparable to a bank credit card offer… until you read the fine print. It’s deferred interest. If you can positively pay off that entire amount before the offer is up, you should be okay. However these days with so many unknowns in the economy… who can predict their economic future with 100% certainty? Considering that many store cards have APRs in the 22% to 30% range, deferred interest offers like that are certainly a risky proposition!
How a major credit card with 0% can be maximized…
If something happens and you aren’t able to pay the balance off in full before the promo period, you won’t get hit with interest retroactively on a major credit card.
So that means if it’s a 0% on purchases for 12 months offer, it really is 0% for the entire 12 months… regardless of whether not you pay off the entire amount before then.
Conclusion? If you have good credit, you are much better off going with a 0% on purchases card from a major bank. The offers are always changing, but at any given time you can usually find something offering 0% for 6 months to 12 months on purchases.
When you think about it, these are by far the smartest option if you know in advance you will be carrying a balance. Because once the promo period is up, you can always transfer the balance for a fee usually ranging from 3% to 5% to another card. If you had a 0% purchase credit card for 12 months and then transferred it when that offer was up, that would be like paying only 3% to 5% interest per year… that’s much less than any low rate credit card will give you. In fact nowadays, many of the low rate credit cards still have an APR of 10% or higher.