Interest-free credit cards
Save on costs and pay off your balance faster with a credit card that offers 0% interest on balance transfers.
Trying to get out of debt and looking to save on interest charges? Interest-free credit cards offer you a period of time when no interest is charged on your account balance. While some countries offer 0% purchase credit cards, these cards don’t seem to be offered on the Canadian market.
So, this leaves us with one type of interest-free credit card: the balance transfer card. This type of credit card can offer 0% interest for a specified period of time, however, there are some things to watch out for.
While 0% purchase credit cards are not available on the Canadian market, there are a range of 0% interest balance transfer credit cards. These cards offer introductory 0% interest on balance transfers for a specific period of time – usually 3 to 15 months, sometimes longer.
A 0% balance transfer credit card offers an interest-free period on existing credit card debt that you move onto the new card. The 0% interest rate will typically last anywhere from 3 to 15 months, depending on the offer. This gives you the opportunity to repay your debt without collecting any additional interest, which can help you put more money towards paying off the principal balance faster. Keep in mind you will be charged interest on any new purchases you make on a balance transfer credit card.
- If you make new purchases. When you make a purchase on this type of card, the interest rate for purchases will usually apply from the time the transaction is made. This means you won’t have a “grace period” where no interest is charged.
- If you use your card for a cash advance or cash equivalent transaction. With these types of transactions, interest charges and fees will apply from the time they are made. Be aware that cash advance charges tend to be steep.
- If you don’t pay off your balance transfer debt by the end of the introductory period. If the balance transfer interest-free period ends and you have an outstanding balance to pay, you’ll start collecting interest on it. The interest rate that kicks in once the intro period is up is known as the revert rate.
Also known as the “grace period”, credit card providers in Canada must offer a minimum of 21 days where they charge you no interest on the balance owing. As long as you pay your balance back in full by the time it is due, you will avoid facing interest charges.
While the grace period can seem like a gift from the banks, it is in fact a risky time if you don’t pay off your credit card balance in full. Even if you pay back a portion of what you owe before the due date, banks and credit card providers can charge you interest on the entire sum of owed money, dating it all the way back to the purchase date.
Let’s say you bought a new camera for $1,200 on 21 July. If the billing cycle for your card ends on 15 August and your payment is due on 5 September, you will need to pay the entire $1,200 balance by this date in order to avoid interest charges.
If you decide to pay only $1,000 by 5 September and pay the remaining $200 on 10 September, you will incur interest charges on the entire $1,200 balance dating back to the purchase date of 21 July. This means you’ll be charged interest on $1,200 for 31 days plus an additional 5 days of interest charged on the late $200 balance.
If you want to get a credit card with an interest-free period, consider the following features:
- Introductory period. If the card offers a promotional 0% interest rate for balance transfers, check how long the introductory period is available for. Consider your budget and calculate whether or not you can repay the balance you put on the card while the introductory offer is in place. If not, you might want to look for a card with a longer promotional interest-free period. Balance transfer intro periods generally last from 3 to 15 months, sometimes longer.
- Standard interest rates. The standard variable purchase and balance transfer rates for credit cards usually sit around 19.99%, however they can be as high as 36% APR. Make sure you check what the promotional rate reverts to when comparing options so that you can budget for any interest charges that may apply if you’re still carrying a balance at that time.
- Grace period requirements. Credit cards that offer interest-free days – more commonly known as a grace period – for each statement cycle usually have specific conditions around eligible purchases and repayments. For example, cash advances are not eligible for interest-free days and you must pay your balance in full by the due date on each statement.
- Rewards programs. Some cards earn rewards or travel rewards points for every $1 spent on the card. These programs can provide extra value, but be careful you don’t overspend in order to get more rewards, otherwise you may end up with unnecessary debt since you’ll be charged a revert rate on any new purchases.
- Complimentary extras. Many cards offer complimentary extras such as international travel insurance, purchase protection, extended warranty coverage and concierge services. These perks may add value to your card – but only if you actually use them.
- Annual fees. Card costs can range from $0 to over $700 each year. Make sure that the cost of the annual fee doesn’t offset the interest savings you’ll make from the interest-free offer. You may want to consider a credit card with no annual fee to help save on your costs.
- Balance transfer fees. Some cards have a one-off processing fee of 1% to 5% of your total balance when you apply for a balance transfer. If you choose an interest-free card for your existing debt, make sure you look for this fee when comparing options so you can find one that’s affordable.
Read more on this topic
How to recover your points or miles Need to cancel your travel plans? Find out how you can recover your points or miles and avoid paying additional fees.
Compare HSBC Rewards Mastercards Compare HSBC Rewards Mastercards to pick the best card for your unique set of needs, lifestyle and budget.
How to use the CIBC Aventura Travel Assistant Find out how you can plan your next trip overseas with the help of the CIBC Aventura Travel Assistant.
What should I do with my credit card rewards during coronavirus? It depends on your situation and what type of rewards you have. Learn more.
AIR MILES vs Avion Planning your next trip? Learn how to compare frequent flyer programs to get the best fit for your needs.
What’s the Koho Metal Card and how can I get one? Want a limited edition metal credit card for no annual fee? Find out how you can get your hands on the Koho Metal Card before it runs out of stock.
Does credit card travel insurance cover coronavirus? Find out how you can qualify for credit card travel insurance if you need to change your travel plans due to coronavirus.
Mastercard Tap & Go® Understand how Mastercard's Tap & Go® contactless payment works and the security measures that are in place to protect your purchases.
Contact your bank for credit card payment relief during coronavirus See which banks offer credit card relief for coronavirus.
How long should I wait to apply for another credit card? Here's why you should consider waiting 3 to 6 months between credit card applications.