Interest-free credit cards have long been a way to help borrowers spread the cost of purchases or clear debt they've accumulated elsewhere, but unfortunately, competition in this sector has taken a definite downturn in recent months. It's suffered even more in the last week, with several providers cutting their 0% balance transfer terms in quick succession, which means borrowers will have to stay on the ball to get the best deals.
Our data shows that, in the last seven days alone, no less than four cards have had their balance transfer terms cut, including those that were previously the market-leaders. Others have had incentives removed and fees increased, and some have even had their 0% purchase terms – often an additional perk – removed entirely.
Looking on an annual basis highlights just how far the market has fallen. In October 2017, the longest balance transfer term available was 39 months, a deal offered by no less than six providers, including MBNA, Sainsbury's Bank, Santander and Virgin Money. Now, the longest term is a mere 33 months, available from Barclaycard, MBNA and Tesco Bank.
This highlights the lack of competition in this sector of the market; providers no longer appear to be clamouring to get to the top spot of the Best Buys and are reducing their offerings as a result, with borrowers now having six months less in which to repay their debt.
It's a similar story in the 0% purchase sector. A year ago, Sainsbury's Bank offered a market-leading card offering 32 months of interest-free purchases, yet the same deal today offers just a 29-month introductory term, a drop of three months.
Thinking of applying for credit? Make sure your credit score is up to scratch, for example using Experian.
"At a time of year where borrowers may well be hoping to move their debts around for a bit of breathing space or even to spread the cost of their upcoming festive shopping, it's disappointing to see cuts to the interest-free deals available on credit cards," said Rachel Springall, finance expert at Moneyfacts.co.uk.
"This is an unfortunate trend that has been occurring not just over the past week or so, but over the past few years, which has likely been fuelled by scrutiny in the market for borrowers with persistent debts. This has resulted in the top deals on offer today becoming less fruitful than a year ago, as now the top interest-free term of 33 months is six months less than what was on offer this time last year."
Make the most of the market
So just what can you do if you want to make the most of the market and clear your debts without needing to worry about interest? It can't be denied that competition in the sector is waning, but that said, borrowers still have almost three years in which to clear their debts before interest begins to accrue, with 33-month balance transfer terms and only slightly shorter purchase terms now commonplace.
Then there's the argument that, in some cases, shorter terms can be beneficial; borrowers may not need three years in which to repay their debts, and could in fact benefit from shorter introductory terms – which often come with lower balance transfer fees – to be debt-free sooner.
Whatever your decision may be, make sure to go about it the right way. "Borrowers who turn to interest-free credit cards may want to check out the Best Buys so they don't miss out on a top deal," added Rachel, "and before applying they would be wise to run off a credit report to ensure they have a good score, particularly if they haven't borrowed in the past and have little credit history."
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 any time.