Credit cards – educate a noob

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  • Credit cards – educate a noob
  • ossify
    Member

    Hoping to buy a new bike soon but dropping £1000 on it is unfortunately out of the question… paying something each month is manageable though.

    I have no experience with credit cards, tell me if this example is feasible:

    I can get a 2 year 0% on purchases card. There’s also 2 year 0% balance transfer cards… can this be used to effectively get a 4 year interest free loan, by getting and moving to the second card near the end of the first one?

    It seems like a simple thing but I can’t help thinking it’s potentially a stupid idea :p

    I understand being a card tart can hurt my credit rating but I wouldn’t be jumping cards more than the once.

    Premier Icon Sundayjumper
    Subscriber

    There’s usually a fee on balance transfers. Probably cheap but do check. And obviously it still needs to be available in two years’ time when your 0% on purchases runs out !

    I’d be a bit worried that you’re asking about borrowing £1k over four years though. Better to get it cleared in full before the first 2yr period IMO.

    Premier Icon theotherjonv
    Subscriber

    In theory yes – but who’s to say that there will be 0% cards available to you at the end of the first period (I’ve not been caught yet). And secondly, there’s usually a transfer fee – currently most are at 2.9% so no great shakes but there will be more to pay than you owe one way or another.

    Do bear in mind you have to make repayments on the CC either way – usually 5% of the o/s balance or £5 or 10, whichever is higher.

    So – rough example. If you get £1000 on a 0% 2 year purchase card and then don’t use it again, then you’ll have to pay back £50 / month initially which will drop every month as your debt gets lower. Back of an envelope means you’ll have paid off about £800 in 24mo so by the end of the 0% rate you’ll only have £200 to refinance or pay off.

    If that is even worth doing (let’s say it is for the purposes of this), then transferring to another 0% card will cost you another £5.80 (if rate is 2.9%) so you then have £206 to pay back in another 24mo, same rules as before (5% or £5 minimum)

    I’ve used 0% purchase cards many times before, not because I can’t afford it but because I’d rather keep it in my bank and avoid mortgage interest on it in the meantime. I then divide the repayment sum by #mo and set up a DD to pay it – you absolutely must not fail to pay or you instantly revert to standard rate which’ll be closer to 20%

    In your situation then – that’s £1000/24 = £41.66/mo; I’d probably set it at £50/mo and be done in 20.

    P-Jay
    Member

    On the face of it, that’s correct – Credit Card Companies really do offer the most flexible form of credit, for free and this sort of thing is very fashionable at the moment.

    Few things to consider.

    Credit Card companies make billions every year, they don’t do that from retailer fees, transfer fees and ‘odd mug’ who pays interest on their cards – you need SOLID self-restraint to not use them, for a lot of people after a few years it becomes habit, they’ll have a few grand on their CC and pay off a few hundred a month, put a few hundred back on – these offers are an enticement to a life of credit.

    More importantly to the OP though, they are very careful who they give these interest free cards to, you’ve got to have a perfect history, but more importantly an active one, they’ll want to see a history of using credit, not just a mobile phone contract and a current account – they’ll want at least a chance of making some interest out of you.

    They my advise (hell even MSE and the like do the same) that you take a standard card, with a lower limit for 6-12 months to build up your history – more opportunity to entice you into using them as habit.

    ossify
    Member

    Hmm ok thanks all.

    I wasn’t actually intending to go for the full 4 years on £1000, just seeing if it was actually an option.
    It’ll be a lot easier to persuade the wife if I can say “it’s only a tenner a month” rather than “I’m going to blow a grand on a bicycle, ok?” 😛

    The card would be used for this only and then locked away in a drawer with direct debit repayments set up.

    Guess I should check my rating first anyway, never had any payment problems though and paying a mortgage each month which should help.

    scotroutes
    Member

    And if you write off the bike in the first year will you be happy paying it off for another couple of years?

    Some bike shops do interest free finance, e.g All Terrain Cycles. No risk of being tempted to use the card for other shiny purchases then

    Premier Icon theotherjonv
    Subscriber

    And if you write off the bike in the first year will you be happy paying it off for another couple of years?

    This always gets touted as a reason to not do it, but i just don’t get why it’s different to saving up first, spunking £1000 in cash and crashing it within a year and losing the lot.

    scotroutes
    Member

    Logically it isn’t much different. Emotionally it can be.

    ossify
    Member

    And if you write off the bike in the first year will you be happy paying it off for another couple of years?

    Don’t jinx it! I was trying not to think about that…

    But as theotherjonv says, that’s always going to be an issue.
    Anyway, better than not buying a bike at all because of the possibility of writing it off (easy to say now 😛 )

    Ecky-Thump
    Member

    One thing to note, every unsuccessful credit application that you make has an impact on your ability to make a further one.

    Try the eligibility checkers on MSE first if you’re in any doubt:
    https://www.moneysavingexpert.com/eligibility/credit-cards/

    P-Jay
    Member

    Ecky-Thump – Member

    One thing to note, every unsuccessful credit application that you make has an impact on your ability to make a further one.

    Try the eligibility checkers on MSE first if you’re in any doubt:
    https://www.moneysavingexpert.com/eligibility/credit-cards/

    Credit Applications aren’t recorded as unsuccessful or otherwise.

    There was a time when lots of searches in a short period of time would be considered a negative “credit hungry” they would call it – perhaps a sign of desperation at trying to sort out a financial crisis by borrowing more money etc, but that’s pretty much old thinking now, late 90’s thinking really – these days credit searches are carried out a lot more frequently for more things – like car insurance, utilities accounts etc, plus more people shop around for the best deals – often you can’t get an exact quote for a mortgage, loan or CC until you apply.

    Don’t get me wrong, it’s still a small factor, so if you’re concerned a ‘soft search’ comparison is perhaps a good idea – but really they don’t tell you much.

    You have to remember that whilst MSE is full of really good information, they do have to make money via affiliates – they could be described as a ethical comparison site – they’re paid by the creditors that they recommend and their ‘soft search’ product is their way of introducing you to them, so they do I think over-sell the onus on search history to promote the soft search product – they DON’T have any real understanding of the creditors underwriting criteria and can only give you a best guess – frankly you’re just as well armed with a free Noddle report. To get a 0% card deal you need a near perfect history (forget the score) and a decent amount of spare income each month, but they do prefer existing credit card customers.

    Wibble
    Member

    “P-jay

    Credit Card companies make billions every year, they don’t do that from retailer fees, transfer fees and ‘odd mug’ who pays interest on their cards – you need SOLID self-restraint to not use them, for a lot of people after a few years it becomes habit, they’ll have a few grand on their CC and pay off a few hundred a month, put a few hundred back on – these offers are an enticement to a life of credit.”

    ^^ This – sadly I know from personal experience! If you’re not sure about your restraint abilities I’d avoid credit cards. If you don’t really need it I’d try to save up for the bulk of it at least.

    b r
    Member

    Some bike shops do interest free finance, e.g All Terrain Cycles. No risk of being tempted to use the card for other shiny purchases then

    This.

    Marin
    Member

    I would advise against Nationwide credit cards. I have called them 3 times this week to try and alert them to a fraudulent card using my address of which I have received the statement on Monday and got nowhere. They have just sent me a message with a sad face on. Unbelievably bad customer servvice and total lack of interest over a credit limit of £14000 😯

    olly2097
    Member

    I did it. Barclay card platinum, blew 2650 on a bike and 900 in IKEA. 24 months paid it off. Plus it added to my credit rating. Don’t see the issue.

    slimjim78
    Member

    24mth 0% interest offers are fantastic – IF – you make regular payments and either finish paying by end of term – OR – transfer the remaining balance to a new 0% offer.

    I’ve recently been offered as low as 1.9% fee for the latter. Its a really cheap way to spread the costs. Trouble is, I stick the £500 unexpected car bills on the CC and end up forcing myself to take the latter option.

    Premier Icon hopkinsgm
    Subscriber

    …total lack of interest…

    Interest free? 😉

    jon1973
    Member

    And if you write off the bike in the first year will you be happy paying it off for another couple of years?

    On the other hand, if the world got hit and destroyed by a huge meteorite before you had to pay it off in full, you would have had the use of a bike for next to nothing.

    This is exactly how I use credit cards. Even if you have to pay 3% for a balance transfer then its still cheaper than other forms of credit. As others have said keep the card hidden away and not in your wallet, once you’ve put the balance on because if you put some credit on it at 0% and then use it to purchase something else that doesn’t get the 0% rate then you’ll be paying only the 0% balance off first before the purchased amount, so you will be accruing interest until you pay off your zero percent balance.

    The best thing to do is to get a card that gives you 0% on purchases. This way you avoid the 3% or so transfer fee as long as you can pay it off during the interest free period.

    Sometimes the cards that give you 0% rate on purchases have a lower period of the 0% rate, if that’s the case then just go for a balance transfer card and pay the 3%, or better still get a 0% on purchases card, use up the 0% period then transfer the smaller amount to another card and pay 3% on a lower amount.

    Warning – make sure you make prompt payments each month. If you miss one or late you drop off the 0% rate. Set up a DD for a set amount each month if you can (some won’t let you) or at least set up a DD for the minimum amount.

    If you think you will need to transfer the balance then make sure you don’t miss the date – they won’t remind you and will just drop you onto the normal interest rate – this is how the Credit Card companies make money on these deals – they rely on people forgetting and claw in the interest later.

    Beware that there are some restrictions on balance transfers e.g. I once tried to transfer the balance from a Virgin card to an MBNA card – they wouldn’t let me as the Virgin card was part of MBNA.

    If you’re disciplined and rigorous you can enjoy the benefit of free money – you’d be a fool not to take advantage even if you have the cash sat there in a savings account. But if you’re not organised or not good with credit, then avoid – you can rack up big debt very quickly.

    Premier Icon theotherjonv
    Subscriber

    if you put some credit on it at 0% and then use it to purchase something else that doesn’t get the 0% rate then you’ll be paying only the 0% balance off first before the purchased amount, so you will be accruing interest until you pay off your zero percent balance.

    True for balance transfers for sure, but many purchase cards now have removed this stipulation and quite rightly. The 0% rate stays for all purchases in that period but the interest free rate doesn’t go out – say you have a 24mo deal and buy something on Day 1, you then get 24mo interest free. If you buy something after a year and 10mo, you don’t get 24mo interest free, you’ve got to clear it in the remaining 2mo.

    (I know that’s obvious, but it might not be to everyone if you haven’t spent the last umpteen years tarting about between various cards and spending their money instead of my mortgage interest – I am a bit of a pro now…..)

    as always – check the T&C’s carefully to avoid getting caught out by small print. They won’t trick you – banks are pretty well beyond that now…… but that doesn’t mean they won’t screw you if you break their fairly reasonable rules.

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