Number of 0% credit cards plummets due to coronavirus

16 June 2020

Banks are withdrawing 0% credit cards as they worry about borrowers defaulting

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Credit card providers are rethinking interest-free offers due to the coronavirus pandemic, effectively raising the cost to the consumer of many everyday purchases.

The average purchase APR is now at a record high of 25.5%, according to figures from Moneyfacts. This compares to 24.1% a year ago and 23.1% in June 2018.

The number of introductory interest-free purchase deals has fallen from 77 to 55 in the past year.

Meanwhile, the number of introductory interest-free balance transfer deals has dropped from 86 to 56.

Banks are pulling 0% deals as they are worried about people defaulting on their payments due to the economic impact of the coronavirus pandemic.

This is worrying news for people that want to save making interest payments on purchases over a given time, or are looking to manage or pay off their debt.  

Rachel Springall, finance expert at Moneyfacts, says this shake-up of the credit card market could not come at a worse time.

She says: “Borrowers may well use credit cards as a way to spread the cost of their purchases, but for those struggling with debt or who have had their personal circumstances change in light of the coronavirus pandemic, these debts could hang overhead for much longer then they expect.

“Credit card providers act quickly when the risk to take on debts escalates and right now there is a refocus of credit card propositions to mitigate debt write-offs. This echoes the movements seen after the financial crash – indeed, between June 2008 and June 2009, the number of 0% purchase cards fell from 112 to 85.”

Changes to credit card deals

Credit card deals

Jun 2018

Jun 2019

Mar 2020

Jun 2020

Lowest purchase APR card 

Tesco Bank – 5.9%

Tesco Bank – 5.9%

The Co-operative Bank – 6.9%

The Co-operative Bank – 6.9%

Average credit card purchase APR

23.1%

24.1%

25.0%

25.5%

Longest introductory 0% purchase credit card

MBNA – 0% for 30 months

Barclaycard – 0% for 28 months

Sainsbury’s Bank – 0% for 27 months

Bank of Ireland UK – 0% for 24 months

Average interest-free purchase term (days)

360

331

314

282

Number of introductory interest-free purchase deals

88

77

68

55

Longest introductory 0% balance transfer credit card

MBNA – 0% for 36 months, 1.99% fee

Sainsbury’s Bank – 0% for 29 months, 1.50% fee

Sainsbury’s Bank – 0% for 29 months, 2.74% fee

TSB – 0% for 30 months, 2.95% fee

Average interest-free balance transfer term (days)

595

532

534

555

Number of introductory interest-free balance transfer deals

101

86

73

56

Source: Moneyfacts Treasury Reports, June 2020

Springall says those looking for a 0% balance transfer card may also need to act quickly, as the number of these deals could fall further.

Purchase credit cards

With a 0% purchase credit card you can buy items upfront and pay off the amount you have spent over time without paying interest.

If your debt is clear at the end of the 0% period you will not pay any interest.

The current longest introductory 0% purchase credit card is from Bank of Ireland at 24 months. It comes with an APR of 19.9%.

Balance transfer cards

A no fee balance transfer card is a great way of managing your debt and reducing the amount you need to pay back.

It lets you transfer over your balance from an existing credit card to a new one without paying a fee. Make sure you can clear your debt before it reverts to its normal APR so you do not end up paying interest.

The Moneywise best buy balance transfer credit card is from TSB, offering 0% for 30 months with a 2.95% fee on the balance transferred. It has an APR of 19.9%.

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