Credit card interest-free periods are promotional offers provided by credit card companies to attract new customers or encourage current customers to spend more. During an interest-free period, you won’t be charged interest on your purchases or balance transfers for a set amount of time, typically ranging from a few months to over a year. This allows you to make purchases or transfer balances without accumulating interest during the promotional period.
To use an interest-free period effectively:
- Pay off your balance in full by the end of the interest-free period to avoid interest charges.
- Limit your spending to what you can realistically pay off during the promotional period.
- Be aware of any fees or charges associated with balance transfers or promotional offers.
- Keep track of when the interest-free period ends to avoid being caught off-guard by interest charges.
To find the best interest rates after the interest-free period has ended, you can:
- Compare credit card offers online or contact different financial institutions to inquire about their interest rates and fees.
- Check independent financial websites, forums, or publications for reviews and comparisons of credit card products.
- Consider consulting a financial advisor for personalized guidance on the best credit card for your specific financial situation.
Now let’s compare the two scenarios:
Scenario 1
Spending R3000 per month and paying it off within a 30-day interest-free period
In this case, you won’t incur any interest charges, as you’ll be paying off the balance within the interest-free period. You’ll simply pay back the R3000 that you spent.
If you can only afford R1000 per month, then saving that R1000 until you have the full R3000 would only take 2 months in the following scenario:
Month 1:
- Save R1000
Month 2:
- Save R1000
- Purchase Item for R3000
Month 3:
- “Save” R1000
- Pay off item at the end of the 30 day interest-free period with the R3000 you have accumulated
Scenario 2
Spending R3000 and paying it off over three months with a 17% annual interest rate, after an interest-free 30-day period
Month 1:
- Interest-free period, so no interest is charged.
- Payment: R1000
- Remaining balance: R2000
Month 2:
- Balance: R2000
- Monthly interest rate: 17% / 12 = 1.42% (approx.)
- Interest for Month 2: R2000 * 1.42% = R28.40
- New balance: R2000 + R28.40 = R2028.40
- Payment: R1000
- Remaining balance: R1028.40
Month 3:
- Balance: R1028.40
- Interest for Month 3: R1028.40 * 1.42% = R14.60 (approx.)
- New balance: R1028.40 + R14.60 = R1043.00
- Payment: R1043.00
- Remaining balance: R0
Total payments: R1000 + R1000 + R1043.00 = R3043.00
So, admittedly you would only add R43 to the price of your item, but this doesn’t take into account the (minimal?) interest you’d earn while saving up, and all these little “R43” fees will add up over time, especially if the item you’re purchasing is R30,000 instead of R3,000.