0% Interest Credit Cards
Think of 0% intro APR as a type of welcome bonus -- just like points, miles, or cash back. A 0% APR card offers you a 0% interest rate charge on new purchases and/or 0% on your existing card balance (when transferred to your new card) for a certain period of time (usually a year). Once this time period passes, however, the card’s standard APR rate will apply. Therefore, it is important to realize that it is not a permanent benefit. This is especially important if you tend to keep monthly balances on your card month to month . If you accrued a card balance during the introductory promotion you will have to start paying interest once the introductory offer expires. Some cards even charge retroactive interest, which starts to incur on the balance after the 0% APR introductory period expires.
0% APR vs Deferred Interest Financing
In most cases, you are likely to find a true 0% APR. However, in some other cases, you may be offered a deferred interest financing option. While similar to a 0% APR offer, the main difference here is that interest begins to accumulate on purchases you have made (even during the introductory period), and they are only fully waived if you pay back the owed balance in full, before the expiration of the introductory time period. It is therefore vital that you create a repayment plan so that you do not have any outstanding payments by the end of the introductory period.
0% Purchase APR vs 0% Balance Transfer
0% introductory purchase APRqualifies you to pay no interest on outstanding card balances that accrue due to new purchases. These cards are particularly valuable to finance large purchases when you need more time to pay down the purchase. Balance transfer cards offer a different value. You can transfer your existing credit card debt to this card to avoid paying interest payments until the promotion expires. To transfer your debt to your card, typically you will need to pay a balance transfer fee of 3-5%. These are great cards to help you get out of debt because you can start to pay down the principle of your loans rather than interest as well.
0% APR cards are often also used to make big purchases. Making a big payment in the beginning of your introductory period will ensure that you will have months to pay back the amount rather than paying it back all at once.
Who are Balance Transfer Cards For?
Before you even start looking for the ideal balance transfer card, it is important to gauge whether you would qualify for one. The first step in assessing this is looking at your credit score. Since these cards are offering an introductory interest-free rate, they usually expect good to excellent credit scores (i.e. customers with scores greater than around 650). If you have a credit score lower than this it will be much more difficult to be approved, and even if you are, you are likely to have a lower credit limit . Assuming your credit qualifies for a 0% interest card, there are a couple other factors you should compare.
Firstly, you should compare the regular purchase APR of each card once the introductory offer expires. If certain cards have similar introductory offer durations, you should generally opt for the card with the lower interest rate that will kick in once you the introductory period expires. Another factor you should consider in detail is the card’s rewards system. Many cards may offer a generous interest rate but no rewards. Therefore, depending on your spending patterns, it is vital to prioritize one over the other and see if choosing a rewards card for a slightly higher interest rate makes financial sense for you.
It is important to use your 0% APR card effectively and carefully. While these cards can help you immensely in terms of making large purchases, misuse can also lead to more debt. It is therefore important that even after picking a card, you carefully read its terms and conditions.
Furthermore, depending on your card, you may still have to pay interest on other transactions even during the 0% APR promotional period. It is also important to note that the card issuer has the right to terminate your 0% APR offer if you violate any of their terms and conditions. Some card issuers may also apply a penalty APR on top of cancelling the 0% APR offer. However, if you make your payments during the introductory period on time, the card issuer may continue to offer you 0% interest on payments.
0% APR cards are often used as balance transfer cards; however, it is important to realize that while these types of cards offer low interest rates, they often impose fees as a percentage of the amount being transferred. Another important aspect is that after the approval of your card, you will be allocated a credit limit based on your financial history. Therefore, it is crucial to remember that you can only spend up to your credit limit. This is also true for balance transfers since credit card issuers usually impose restrictions on the proportion of your credit limit that can be used by transferring a balance from another account.