I wrote at the beginning of the year about how we were seeing long-term interest-free balance transfer deals disappearing from the market, but are 0% purchase deals following suit?
In the last quarter alone, Post Office Money has reduced the length of its 0% interest on purchases credit card offer from 28 months to 8 months, with other major players such as Santander (MC:SAN) and Virgin Money (LON:VM) also making cuts. So the question is, are the best 0% purchase credit card deals going away?
Are there still good deals out there? According to the latest quarterly Moneyfacts UK Credit Card Trends Treasury Report, the average interest-free purchase term has fallen to its lowest level in two years. You would be hard pressed to find anything above 30 months interest free, with the top of the market reaching 28 months. Not only has the average 0% term been on the decline, but the number of interest-free deals available has also been hit. According to the report, as of March 2019 there were 75 0% purchase deals available on the market compared with 102 in March 2017.
To put a positive spin on things, with the best of the best buys you would still be looking at over two years’ interest-free credit if your application was successful. That is a decent length of time to clear your balance without incurring any interest charges.
However, the downside of the current situation is the lack of competition and variety among the offers. As there are not many cards offering 0% purchase deals for a high 20s number of months, if you do require a long interest-free period your options are limited. And as past behaviour has shown us, any significant withdrawal or reduction of offers can lead to a domino effect among providers, with the potential for interest-free deals to be reduced further or more to be withdrawn from the market altogether.
Are 0% deals going away? It’s hard to say what the future of 0% purchase deals is. With the current economic uncertainty in the UK as a result of Brexit, and potential increases in the Bank of England base rate, there isn’t much of an appetite among credit card providers to offer long interest-free deals. Also, there may be the aforementioned domino effect among providers if products are withdrawn or reduced. Competition lessens and therefore the driving force for offering longer interest-free terms goes away.
However, an argument could be made that it is the natural ebb and flow of the market, in which interest-free terms started at six months in 2000 and reached the heady heights of 43 months in 2017. The market may now just be on a decline and could pick up again in the future.
Should I get a 0% purchases card now? There is no need to panic; although the number of deals available is declining, 0% deals are not disappearing altogether. If you are interested in a long-term 0% purchases deal it could make sense to take one out one sooner rather than later, just because of the way the market is trending this year. As Brexit is yet to be resolved, and as a result the UK remains in economic limbo, I see it as likely that the number of interest-free deals will continue to reduce in the short term.
Also, it could be a pretty smart move to secure a 0% purchases deals now, as the impact of Brexit on household circumstances is unknown. Just remember to not take on debt that you cannot repay in the time frame given to you. Interest-free deals on purchases are a useful financial tool, but if you have any balance remaining once the term ends, you will be charged interest at the card’s standard purchase rate.
Want to secure yourself a 0% purchases credit card? Check out our top picks for 0% cards
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Motley Fool UK 2019