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There
are two meanings normally given the the term 0% when refering
to credit cards.
0% on balance transfers
When
you transfer an existing credit card balance from your current
card to a new card, the credit card company normally charges
you interest on the balance you have transfered. Recently
this has become less common as companies have tried to beat
their competiotion by not charging for the balance transfered.
This is what is know as 0% on balance transfers.
As
this has become more popular companies companies have looked
for ne ways to differentiate and another popular way is
by offering longer periods of 0% balance transfers to entice
the end customer to pick them as their card provider. This
has led to some fantastic savings for many people. A common
time for the 0% interest offer is 6 months, but can vary,
lets do some sums.
If
customer "A" has £8000 on their current
card and £xx per month just in "Interest"
, they could transfer their balance to a card that offers
0% on balance transfers for 6 months. This would mean customer
"A" saves £xx per month in interest for
6 months, £xx times 6 months. That's a lot of "xx's"
to save!
A
common practice is to apply for another credit card, with
0% on balance transfers before this 6 months is over, bearing
in mind it could take a month to process the application
for a new card, the idea is to then transfer the balance
again to this new card and enjoy another 6 months.
0% on Purchases
Some
cards, but not many, offer 0% on purchases too, this means
you can use a card offering this feature and not pay any
interest on what you've purchases. Mad eh!
It makes you think
Why
do they do this, how can they make money if they don't charge
interest?
The
answer:
Credit
card companies aren't stupid, they know that many people
will take full advantage of the above and probably won't
pay much interest if they keep on the ball. But, many people
will take out a card and not take full advantage of transfering
balances at the end of a period to other 0% cards; it's
these people who will make the credit card company money.
If you forget to transfer the balance away on time you will
be subject to the interest applied to the balance after
the interest free period, if at the same time your balance
has increased, because you have bought things using the
0% on purchases feature, then the card company has helped
you along to increase your balance owed to them which will
make them more money on the interest if you don't transfer
your balance away in time.
The
card companies are not giving these offers to be kind, they
see money in them there hills, but if you keep your eye
on the ball you can prevent them getting it.
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