No interest credit cards were released in response to the growing trend for buy now pay later services like Afterpay and Zip. They exist somewhere between a credit card and a buy now pay later service.
What is a no interest credit card?
A no interest credit card combines the functionality of a credit card with the interest and fee structure of buy now pay later. These are the main features.
- No interest on purchases. As the name would imply, there is no interest on purchases. If cash advances are not blocked, there is usually no interest on withdrawing cash from an ATM (although a one-off cash advance fee may apply).
- No fees, except the monthly fee. No interest credit cards could just as well be called no fee credit cards since they don't have annual fees, late payment fees, or foreign exchange fees like those charged by credit cards for shopping online with an overseas store. In the absence of interest and fees, banks charge a simple monthly account fee, itself quite low, which is usually waived if the card hasn't been used during the statement period.
- No frills. If you want to earn rewards, get airport lounge access, or enjoy some of the other benefits that many credit cards offer, then these are not for you.
No interest credit cards vs buy now pay later
While there are similarities between the two, there are some key differences to be aware of. No interest credit cards are not a like-for-like replacement for whatever buy now pay later service you may be using.
- Interest-free purchases. No interest credit cards and buy now pay later are both generally interest-free.
- Lack of fees. Both types of payment generally have no late fees or annual fees to pay.
- Instalments. Buy now pay later services like Afterpay typically have a set instalment plan for repaying purchases. No interest credit cards don't and it is possible to carry a balance between months, albeit with no interest.
No interest credit cards vs standard credit cards
No interest credit cards are distinct from standard credit cards in terms of their interest and fees. Here's how.
- Balances can accrue. Like a standard credit card, any balance that hasn't been repaid will carry over.
- There is a credit limit. However, no interest credit cards have low credit limits in comparison with most other types of credit card.
- No interest on cash advances. Although some banks have blocked cash advances on their no interest credit cards, those that haven't don't charge interest on cash advances. Practically every standard credit card charges interest on cash advances.
- No annual fee. While some credit cards have no annual fee, most do. No interest credit cards do not have an annual fee.
- No late payment or foreign exchange fees. Some credit cards don't charge a foreign exchange fee, but most do charge a fee for late payment.