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Interest-free credit myth

19 July 2004
Consumers are being warned not to be fooled by promises of interest free periods, as it emerges some card companies are charging interest earlier than expected.

For many, interest is being charged from the minute goods are bought if the whole of the outstanding balance is not cleared every month.

Adding to the confusion is the fact there are two different interest-free periods.

The first is the initial interest-free period offered on balance transfers to lure customers from rival cards.

The other is the interest-free period on cash transactions and purchases, which averages 56 days.

Many consumers therefore feel that they have 56 days after the transaction before interest is charged.

But comparatively few companies offer this service. Providers in this category include HSBC, Egg and Intelligent Finance.

Mint joins this list at the beginning of August, claiming the change will affect only "a small proportion" of its customers.

The answer for people in this situation is to look for a card with a no-strings interest-free period that will not penalise them for not clearing the entire balance.

Another stealth tactic used by providers is to charge interest on the outstanding debt in the period between sending out a bill and payment being received. So even if the bill is paid in full, an interest charge will appear next month.

Recent research by the Department of Trade and Industry also revealed that "almost no-one" reads the pre-contract notes before taking out a credit card.