Joshua Cleaver

By Joshua Cleaver

One of the ways that credit card companies attract new customers is by offering promotional 0% interest periods. These 0% periods are meant to encourage people to sign up for new cards by giving them an interest-free period on credit card spending (0% purchase cards) or on debt transferred from another credit card (0% balance transfer cards).

When used correctly, these cards can save customers money by letting them avoid interest payments. Once the 0% period ends, however, the standard interest rate (APR) kicks in - which is typically over 20%.

The bad news for customers is that in recent months promotional 0% interest periods have been getting shorter, while representative APRs have been rising, as shown in the graphs below.

One reason for these changes is the recent increase in interest rates. The Bank of England base rate has risen from an all time low of 0.1% in March 2020 to a much higher rate 4.25% as of April 2023. As interest rates increase, credit card companies tend to raise their rates too.

This can have serious consequences for borrowers. If people are unable to pay back the money they borrowed - which is harder to do with a shorter 0% period - they can find themselves in persistent debt and financial hardship.

In these circumstances, it is important for providers to look to the FCA’s guidance on credit lending. Since 1 September 2018, providers are required to:

  • Identify those who remain in persistent debt and to prompt them to change their repayment behaviour

  • Put repayment plans in place when these prompts fail to work

  • Intervene earlier to help customers who show signs of actual or possible financial difficulties.

The FCA has introduced a package of remedies that firms are able to employ on a voluntary basis, including:

  • Alerts on the utilisation of their credit limits

  • The option for customers to request a “later than” payment date on their repayments

  • Notifications about when promotional offers are going to end

These are all important steps for providers to take.

In our view, providers should also be very clear with customers under what circumstances they can lose their promotional 0% offer before they apply for the card. That way, there is less chance that customers unwittingly lose their 0% offer and so end up borrowing on much worse terms.

An example of good practice here can found on the website for the Virgin Atlantic Reward Credit Card (though this could be better signposted by underlining the text and presenting it in a bolder font):

Other providers should follow this example to make sure that credit card borrowers use their cards appropriately.