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Category: Credit cards Date: 12/3/2010
When you hear about the best credit cards, the likelihood is that you will be hearing about a card with an attractive 0% purchase or 0% balance transfer deal. But there is an unsung type of card - less flashy to be sure – that charges a low rate of interest on purchases.
You may not have visited our low rate credit card Best Buys – of late the low rates haven't seemed to be that low. But there is a standout card, the Barclaycard Platinum Simplicity Credit Card, which only charges an incredible 6.8% per year on purchases and balance transfers – that's lower than the cheapest loan rate currently available!
But how can this be cheaper than a really good 0% balance transfer, or 0% purchase card? Well, the answer is it can't be if you repay any balance within the 0% period – but if you don't what about then? Let's take a look at how the Barclaycard Platinum Simplicity Credit Card compares against the Virgin Money Credit Card MasterCard (currently topping our 0% balance transfer Best Buy chart) and the Tesco Clubcard Credit Card MasterCard (currently the longest 0% purchase card on offer).
As well as this, it is also useful to look at the lowest priced loan on offer (that is available to new customers) – at £5,000 over three years this is the Sainsbury's Finance Nectar Cardholder Personal Loan.
The Sainsbury's loan has an APR of 8.6% fixed, with a monthly payment of £157.33. So let's look at how borrowing £5,000 on a credit card and repaying £157.33 each month, compares to the loan.
Barclaycard Platinum Simplicity Credit Card
Virgin Money Credit Card MasterCard
Tesco Clubcard Credit Card MasterCard
Introductory 0% purchase offer
-
0% for 3 months
0% for 13 months
Typical APR for purchases
6.8%
16.8%
16.9%
Introductory 0% balance transfer offer
0% for 16 months
0% for 9 months
Annual Rate for Balance Transfers
18.9%
18.268% to 24.238% (rate dependant on individual circumstances)
Balance transfer fee
None
2.89%, min £3.00
2.90%
Sainsburys Nectar Card Personal Loan
How long would it take to clear the debt?
2 Years 11 Months
3 Years 3 Months
3 Years
How much interest will you have paid?
£477.36
£1,090.30
£408.22
£663.88
3 Years 2 Months
£353.91
£762.34
* We have added this to the initial £5,000 balance in the interests of fairness.
All calculations for credit cards assume that standard rates of interest remain at their current levels throughout the term of the comparison.
So depending on whether you are looking at a big purchase, or whether you are looking at re-financing debt, the card that's best for you differs. And this is purely because of the introductory offers of the Virgin and Tesco cards, which allow you to pay down your debt significantly during the interest-free period.
Of course something you might consider doing is switching to another 0% balance transfer deal at the end of the initial period, to make even bigger savings.
However, you should be very honest with yourself if you are considering going the credit card route. Whereas the loan is repaid at the end of three years, if you don't keep to the suggested repayment plan on a credit card, or make additional spending, you may end up paying a lot more and being saddled with debt for a lot longer.
As you can see, the Barclaycard Platinum Simplicity is neither the cheapest for a purchase or balance transfer of £5,000 over three years, although it is much less expensive than the loan for both. Over a longer term though, the advantageous introductory deals offered by the Virgin and Tesco cards are eroded. Let's assume that you can only afford to pay £100 off your debt each month, how does the Barclaycard compare in this situation?
If you made purchases of £5,000* and put it on the card, and then paid £100 (or as near as possible, depending on the minimum payment) off each month…
4 Years 10 Months¹
6 Years 3 Months
4 Years 9 Months²
£807.70
£2,464.36
£1,022.43
If you transferred a balance of £5,000* to the card, and then paid £100 (or as near as possible, depending on the minimum payment) off each month…
5 Years 6 Months
5 Years 4 Months²
£1,367.42
£1,594.18
* Where a Balance Transfer fee has been charged, we have added this to the initial £5,000 balance in the interests of fairness.
¹ Initially the minimum payment on the Barclaycard would be £112.50. This would gradually decrease as you repay the debt, allowing you to pay £100 from month eight.
² Due to the nature of Tesco's minimum repayment, you would not be able to just repay £100 for the first 15 months in the case of a purchase, and 20 months in the case of a balance transfer. Initial minimum payments would be £150 for a £5,000 purchase balance, and £154.35 for a £5,000 transferred balance.
For a lower payment amount, the Barclaycard Platinum Simplicity comes off better in both a purchase or balance transfer situation, and suits if you don't like switching your balance regularly between cards.
Over the short term, a 0% purchase or 0% balance transfer credit card is the cheapest option for borrowing, depending on what you are borrowing for. However, over the longer term, if you don't change your card, the low rate Barclaycard Platinum Simplicity becomes cheapest.
However, to make sure you get the best deal, you should be organised and disciplined.
That means disciplined in making much more than the minimum payment on your credit card (setting up a Standing Order can really help with this – although you should note that the Virgin Money Credit Card MasterCard doesn't allow you to do this, so you might need to set a regular reminder on your phone perhaps so you remember). To be safe, it's also advisable to set up a monthly Direct Debit for the minimum repayment.
But the most cost efficient way of repaying your debt remains getting a 0% purchase or 0% balance transfer card and transferring any remaining balance to a new card once the introductory period ends.
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at anytime.