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The credit card market has seen competition ramp up of late, with lenders fighting to sit at the top of the Best Buys. In the past, this competition was focused mainly on the balance transfer market, but this is no longer the case – research from moneyfacts.co.uk shows that 0% purchase cards are now benefitting from this fierce competition as well, with the average number of interest-free days having increased by 37% in just one year.
As the table below shows, the average introductory purchase deal now stands at 381 days, up from 279 days this time last year, with the longest 0% term available an impressive 31 months. That marks an increase of four months over the last year, and eight compared with May 2015, highlighting the level of competition in this sector of the market.
|Average Introductory Purchase Dead Period (days)||253||279||381|
|Longest Introductory Purchase Deal Period (months)||23||27||31|
"Introductory interest-free purchase credit cards have always been a great way for borrowers to get some breathing space when buying larger items, and they now have even longer to spread the cost of purchases, with the longest introductory deal period having risen by eight months in two years," said Charlotte Nelson, finance expert at moneyfacts.co.uk.
"The competition among providers has been fierce, with many trying to leapfrog each other to earn not only the top spot in the Best Buys, but also to be seen as offering the longest deal on the market. This battle was once primarily focused on balance transfers, but as that market has started to become saturated with great offers, providers' attention has moved on to new areas, including introductory purchase offers."
However, while the competition is certainly welcome, it's important to remember that these deals should only ever be used by those who are confident they can afford to pay off the balance in full by the end of the term. As Charlotte points out, "the major concern is that these deals attract borrowers with a date that seems so far off in the distance that they might lose sight of the end of the deal, and so find it creeps up on them much faster than expected.
"Borrowers would then be faced with a typical interest rate of 18.9%, which can be eye-watering particularly when compared to the previous interest-free period."
Nonetheless, 0% purchase credit cards can be a useful tool, provided you use them wisely. For example, our calculations show that if someone borrowed £3,000 on such a card and paid back £100 every month, they would finish paying off the balance one month before the longest ever introductory purchase card period of 31 months came to an end, meaning they would avoid interest altogether.
Just make sure you have a plan in place to pay it all off in time. "Borrowers must be disciplined about the debt they are taking on, noting the expiration of the deal in their calendar and ensuring that they set up a direct debit to repay it each month," said Charlotte.
The latter is especially important since certain cards require minimum monthly repayments for the introductory deal to remain valid – if you don't pay at least that amount, your 0% deal could be withdrawn and you'll have to start paying interest. Make sure to have a plan B as well: if for any reason you can't pay off the balance in the given term, there are options available to minimise the cost, such as opting for a balance transfer deal.
Make the most of the competition – check out the best 0% purchase credit cards
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