Permanent zero per cent credit cards

It is very rare that there are permanent zero per cent credit cards, and when there are they can be quite hard to understand.

A normal zero per cent credit card operates by offering an interest free period of a few months, usually between three and eighteen months.  This will mean that after this time the borrower is likely to stay on the credit card and so be on the normal interest rate.  This can be for a long time, and so the zero per cent interest credit cards are often seen as a marketing tool which instead of paying a large amount of money on advertising has the credit card company using some of this money on off setting the credit card interest instead.

This is not the case with a permanent zero per cent credit card.  This will offer zero per cent on balance transfers from other credit cards for the life of the credit card.  This seems to be a free gift from the credit card company, but it is not designed to be.

With a permanent zero per cent credit card then there is an element of forced spending on the credit card.  The credit card holder is obliged to spend a certain amount of money on the card every month.  This can be as low as one dollar per month.  However if there is no money spent on the card in that month then the credit card will be cancelled.

The reason for this is to charge interest on the spending amount.  These credit cards rely on what is known as the payment hierarchy.  This is the practice of setting off the repayments against the lowest interest balances on the credit card first.  As the balance that has been built up through spending is charged interest and the balance that has been transferred from other credit cards is not charged interest then the balance that will be charged will be the spending balance as this certainly has the lowest interest rate.

This will mean that the spending balance will tend to take the longest to pay off and so the average interest that is charged on the balance will actually go up over time.  This is the same way that a long term low interest rate credit card works.  However these cards have been introduced a few times and have never really been found to be profitable.