Should I use a 0% credit card

djmoffat

Hello,

I have an upcoming large purchase I need to make. The purchase is approx. £5000.
I do have enough savings to pay this off in full. These saving are currently in one of the best easy access savings, paying 1.5% interest.

So, the question is, should I

A) get a 0% credit card, and pay it off, via direct debit, over the next 18 months?
Pay it off directly, and put the same amount of money back into my saving every month over the next 18 months.

What are the potential pitfalls of using a credit card? It seems easier to just pay it off in cash, but if nothing else I would loose on interest?

Would this have a larger negative impact on my credit report? I would like to buy a house in the next 5 years.

Thanks
Dave

[Deleted User]

Option A is more profitable, but only if you have the discipline to repay in full before the promo period is up.

As long as the debt is repaid within the 0% period, lenders are unlikely to be concerned. Certainly not in 5 years time.

Does the retailer accept cards?

Terry_Towelling

Effectively what you are proposing is 'stoozing' and it is clearly better for your overall income level if you pay with a 0% card, retain your cash (to receive interest) and gradually use it to repay the CC debt.

Not sure why you are even remotely bothered by your credit score because you are the only person who will ever see it. Your credit history is another matter but if you manage the debt properly within the planned 18 months (or less) why would your five year plan suffer?

Your biggest issues will surely be possible house-price inflation, mortgage interest rate rises and having a big enough deposit for any house you plan on buying. Spending £5K now might affect that. But, if you need to make the purchase, you need to make the purchase.

JayMawds82

Use the card, cut the card in half afterwards and set up a standing order to pay it off in 18 payments.

Ben8282

You have not really given sufficient information to advise.
Do you already have any credit cards?
If no, then you may not be able to get a card with an 18 month 0% purchases offer and/or with a sufficient credit limit.
You mention 18 months. Do you have a specific card in mind which offers 18 months 0% on purchases? If not, why do you specify 18 months?
In theory, the idea of making this large purchase using a 0% purchases card is a good one provided that you make sure the debt is repaid prior to the end of the 0% period. You can do this by making minimum payments then paying off in one lump sum at the end, by dividing the amount due by the number of months and making equal payments throughout the period, or some combination o the two. It is normal to pay by direct debit which can be set up for either minimum payment of a fixed monthly amount. Don't pay by standing order.
One thing to bear in mind though especially if you have no other credit cards or have low limits, is that by using almost all of your available credit to make this purchase your credit files will show a very high utilisation % and may affect your ability to obtain further credit until the debt is repaid.

Craig1981

i would certainly use a credit card (if accepted by the retailer) for a purchase of £5k, to ensure i get s75 protection. the amount spent on the credit card for this purpose is as little as 1p, so long as total amount is worth more than £100

enthusiasticsaver

If you plan to buy a house in the near future I would use your savings.

If you think you will clear the debt by the time you apply for a mortgage and you can be disciplined to pay it off by the time the 0% deal expires then yes it can actually be helpful to your credit report to show well managed credit. You also of course keep your 1.5% interest. Do you have other credit cards or loans?

Sharon87

I'd say it's a good idea if you get accepted and the retailer accepts credit cards without charging a fee AND you're disciplined not to spend it.

When my phone died unexpectedly for instance I used a 0% card to buy a new phone and paid it off over 12 months. It meant I didn't pay any interest to Apple for their credit or to anyone else.

I would definitely use a credit card for the s75 protection even if it was only a partial payment. If something happens you can reclaim the ENTIRE cost of the purchase, not just what you paid on your card. Credit cards are the best option for a large purchase (on 0% or paying it off in full)

djmoffat

Thanks everyone

@terry - I never mentioned credit score at any point. I did ask about credit report, which was intended to mean credit history.

I am concerned about credit history, as the borrowing money in a credit card may look worse from an outsider perspective than an organised loan - however, once it is all paid back, I agree with you all that I don't think this would be a problem.

@ben8282 - I do have other credit cards, so this would work out as approx 35-40% utilisation of my available credit, so I don't think that is a problem. I also really like the idea of just paying off the minimum each month for the 18month period, and then paying it off in a lump sum. So, I may choose to do that.

@everyone else - I do try myself to make sure I actually pay it back, I know the risks, but I can be financially disciplined with myself - that is how I ended up with the savings in the first place. I do also have other credit cards, and have managed not to max them out every month - so that is not a problem. The original deposit of £100 has already been put down on a credit card, so I have S75 regardless of whether I pay cash or not. I also used MSE's credit card eligibility, and it believes I am 95% eligible for getting the 0% card, so I think that would be fine.

I have now applied for the credit card - my credit limit approved is £4500, so £500 less than I wanted.

Currently my plan is to put the remaining £500 on my Tandem card (as they don't accept Amex), for 0.5% cashback and paying it off in full, when the bill comes in.

Thanks everyone

Terry_Towelling

djmoffat wrote: »

@terry - I never mentioned credit score at any point. I did ask about credit report, which was intended to mean credit history.

Apologies.