Credit Card News

Two credit cards currently rated as Outstanding by Moneyfacts have just announced changes to their introductory 0% interest periods.

Sainsbury’s Bank has reduced it’s introductory 0% purchase and transfer terms on its Dual Offer Credit Card Mastercard from 27 to 26 months with immediate effect. This card offers an APR of 20.9% and balance transfers are subject to a fee of 3.00% or £3.00, whichever is more. As part of the Nectar rewards scheme, customers can earn Nectar points both in Sainsbury’s and elsewhere. Applicants must be aged 18 or over and can apply for the card online or by phone.

On the other hand, in its most recent review, Halifax has increased the introductory 0% purchase and balance transfer terms from 20 to 24 months on its Online Balance Transfer and Purchase Credit Card Mastercard. The APR is 19.9%. It may be worth noting that after three months, those who wish to transfer a balance on this card must also pay a fee of 3.00% or £3 – whichever is the higher of the two. The card, which must be applied for online, requires applicants to be aged 18 or over.

These changes see both cards remain two of the most competitive currently available when compared to other credit cards offering both 0% purchase and balance transfer deals. The full range of further deals can be seen by visiting our 0% introductory balance transfer table or our 0% introductory purchase credit card chart.

The average credit card debt will take 26 years and nine months to repay if only the minimum payment is made each month, according to a report produced by The Money Charity.

Data from Money Statistics May 2019 reveals that the average credit card debt per UK household was £2,655 in March 2019 and the average interest rate on credit card debt stood at 19.87% in April 2019, which The Money Charity calculated would take over 25 years to pay off when only making the minimum monthly repayments.

When making its calculations, the charity used a formula many providers adopt when charging interest and repayment fees to credit card debt – interest, fees and charges plus 1% of the outstanding balance and often also with a flat rate of for example £5 per month – along with keeping in mind that balances and, therefore, minimum amounts reduce over time as the debt is paid off.

Commenting on the calculation, Erik Porter, acting chief executive of The Money Charity, said:

“This stark calculation shows exactly how problematic credit card debt can become if not taken on with a mindset of full understanding the product, its total costs and affordability, looking towards how it can be managed sustainably by planning and budgeting accordingly. It is essential that consumers appreciate that credit cards can be a helpful financial tool to be used wisely but mustn’t be treated as an inconsequential loan. While the calculation is an extreme one, sadly it does seem a plausible scenario for too many people.”

The reward credit card sector has been hit hard in recent years, largely the result of the EU interchange cap ruling in 2015 that limited the amount card providers could charge businesses for accepting card payments, which saw many providers cut their rewards in an attempt to remain profitable. However, our latest analysis of the market shows tentative signs of competition returning to the sector, with several providers improving their reward offerings in recent weeks.

Interest-free purchase credit cards can be a great way for consumers to spread the cost of a large purchase, yet unfortunately, it seems they now have less time in which to repay the debt, with providers cutting terms across the board – meaning that the average interest-free purchase term has fallen to the lowest level seen in two years.

That's according to the latest quarterly Moneyfacts UK Credit Card Trends Treasury Report, due to be published later this week, which shows that the average interest-free term on purchases has fallen to 335 days, down from 356 a year ago and the lowest seen since March 2017 (316 days).

This marks an ongoing trend with credit card providers, many of whom are reducing the terms offered on their introductory 0% deals. Virgin Money, Santander and Post Office Money, for example, all made cuts to their terms in the last quarter, some by as much as 20 months, which has had a dramatic impact on the overall average. However, it is the slight adjustments to the top cards in the market that pose a greater threat, as other top players could well follow suit in response.

The table below highlights the changing market in more detail. Not only has the average 0% term fallen, but the number of interest-free deals has seen a sharp downturn, too, with this sector of the market becoming increasingly stretched.

Source: Moneyfacts Treasury Reports

"The credit card market is clearly undergoing a spate of reductions across interest-free terms," said Rachel Springall, finance expert at Moneyfacts.co.uk. "The cuts are likely set to continue, but the severity does depend on how long the market-leaders are able to sustain their offers. As we have seen countless times, any significant card withdrawals or reductions can create a domino effect if their counterparts are inundated with applicants.

"Indeed, during a period of economic uncertainty, borrowers may well turn to 0% introductory purchase credit cards not just for high-cost goods, but also as a way to cover any financial emergencies. The fact that the length of the average interest-free period has fallen to a two-year low will therefore be hugely disappointing."

At one time, terms of 30 months and above were commonplace, but those days have come to an end. As it stands, the longest 0% purchase term available stands at 28 months, and even then there are only three cards to choose from, with Post Office Money recently slashing its 28-month deal down to just eight months. This essentially means that consumers have less choice when they're looking to chase down the top deals, and means it's even more important to compare the options available.

"It can be sensible for borrowers to consider one of these cards, particularly as they can get over two years' breathing space on their debts," said Rachel. "If someone made a purchase of £3,000 on a typical credit card and made just £100 in repayments per month, the debt would linger for over three years and cost them £970 in interest*." Yet if they put that same purchase on a 0% card, they wouldn't have to pay any interest whatsoever – as long as they cleared the balance in full before the interest-free period ends – which could make all the difference to household finances.

However, those looking to take advantage of the top deals that are still available may want to be quick, as if the latest trend is anything to go by, they may not be around for long. Rachel concludes: "If consumers are waiting for better deals to surface in this sector they may be waiting some time, as it doesn't appear that any card providers are prepared to offer a deal sitting way above the leaders. To avoid disappointment, customers may want to apply sooner rather than later, before terms get even shorter."

*Credit card repayment based on £3,000 purchase, based on an interest rate of 18.9% APR, minimum fixed repayment of £100 (thereafter a minimum of 1% plus monthly interest or £5, whichever is higher) and would take 3 years and 4 months to pay back, costing £970 in interest over this term.