Repay your credit card balance with no interest and get the flexibility of buying now and paying later.
A 0% APR credit card is so attractive because it lets you avoid one of the biggest costs of using a credit card: interest payments. With a 0% APR credit card, you can enjoy several months of paying no interest while you have your credit card. You can use a 0% APR credit card to pay off high interest rate balances from other cards, or for interest-free financing on major purchases.
What is a 0% APR credit card?
A 0% APR credit card is a credit card that applies a 0% interest rate to all or some of the transactions you make with the credit card. The 0% APR can apply to purchases and balance transfers, or both, depending on the specific credit card. If you choose a credit card that uses a 0% APR for both purchases and balance transfers, you can enjoy the best of both worlds. Unfortunately, cash advances seldom qualify for a 0% APR.
A 0% APR credit card is great for one-time large ticket purchases like furniture, a vacation, holiday shopping, emergency expenses, or for consolidating debt. You can get the maximum benefit from your card if you use it once for a big purchase, then spend the remainder of the promotional period paying off the balance.
You only have a certain amount of time to enjoy the 0% APR. The promotional rate typically applies for 6 to 21 months after you’re approved for the credit card. After the promotional period has ended, the regular APR will go into effect for all balances on the credit card and for transactions made from that point forward.
Even though you won’t be charged interest on the balance during the promotional period, you still have to make the monthly minimum payment required by your credit card issuer. Failing to make the minimum payment will not only result in a late fee, it can also cause the interest rate to switch to the regular APR. Paying more than the minimum is actually better; it’s the only way you can pay off your balance completely before the regular interest rate takes effect and your balance begins to accrue interest.
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Credit card interest explained
Interest is the price you pay for borrowing money and repaying it over a period of time. On a credit card, you have a certain amount of time (the grace period) to pay your full balance and avoid paying interest. In certain circumstances, the grace period may not apply. This includes certain transactions like balance transfers and cash advances, and purchases made when you started the billing cycle with a balance.
Interest is charged based on your APR, or annual percentage rate, and your credit card balance. The higher these two amounts are, the more interest you pay.
It can take longer and cost more to pay off your credit card balance when you have to pay interest. A portion of each credit card payment goes toward interest and the rest actually reduces your balance. Using a credit card with a 0% APR can help you avoid interest and pay off your balance much faster and at a lower cost.Back to top
How much money will you save?
Many people don’t realize just how much money they spend on credit card interest. The following table will give you an example of the amount of interest you can save over 15 months with a 0% APR credit card and a $2,500 credit card balance.
|Credit Card A||Credit Card B||Credit Card C|
|Repayment period||15 months||15 months||15 months|
As you can see, a 0% APR credit card can save you a significant amount of money. The higher your interest rate, the more interest you’ll pay on the same credit card balance. Not only that, having a higher interest rate means you’ll have to make bigger payments to pay off your credit card balance within the same time frame.Back to top
How to compare 0% APR credit cards
As you look at different 0% APR credit cards, here are some of the things you should consider to choose the best credit card for you.
- Which balances will the 0% APR apply to? The 0% APR might apply to balance transfers or new purchases, or it could apply to both types of transactions. Keep in mind that if the 0% APR only applies to one type of balance, any other transactions you make will be charged interest at the regular interest rate.
- How long will the 0% APR last? The longer your 0% APR lasts, the better. A credit card with a longer promotional period is better because it gives you more time to pay off your balance and avoid paying interest. By law, promotional rates must last at least six months. Many credit cards offer 0% APR for longer than that.
- What will the interest rate be after the 0% APR expires? It would be short-sighted to consider only the promotional APR as you pick a credit card. Once your 0% APR promotion is over, you want to pay the lowest interest rate possible on the balance left and the transactions you make from that day forward. The exact interest rate you qualify for will be based on your credit history. The better your credit, the lower interest rate you can expect.
- Balance transfer fees. If you’re planning to transfer a balance to your credit card, the balance transfer fee is an important cost to consider. If you can avoid paying a balance transfer fee altogether, the 0% APR promotion will benefit you even more. Otherwise, consider whether the balance transfer fee is worth it based on the number of interest-free months you get.
- Annual fee. An annual fee on the credit card increases the cost of the credit card. Ideally, your 0% APR credit card will not have an annual fee. A credit card with an annual fee should have something to offer beyond a 0% APR. Additional rewards and perks can make paying an annual fee worth it.
- The credit card issuer. Particularly if you’re considering transferring balances. You generally cannot transfer balances between the same credit card issuer. Look for a 0% APR credit card by a credit card issuer other than the one who issues the credit card you want to transfer a balance from.
- Rewards and other perks. Remember there’s life after your credit card. Any additional perks you can get from your credit card will make it a more attractive offer compared to other credit cards on the market.
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What to watch out for
While there’s a lot of benefit in having a 0% APR credit card, there are some traps you should watch out for as you choose a credit card and even after you’ve been approved for the credit card of your choice.
- Deferred interest programs. It’s important not to confuse a 0% APR credit card with a deferred interest credit card. The two are marketed similarly, but there is a key difference that makes deferred interest credit offers less attractive. With deferred interest, you enjoy a 0% APR period just as you do with a 0% APR credit card, but you must pay the full balance by the end of the promotional period to completely avoid interest. If even the smallest balance is left when the promotional period ends, your account will be charged interest retroactively from the first day of the promotion.
With a true 0% APR credit card, you are only charged interest on the balance remaining once the promotion ends. Deferred interest programs are often offered with in-store financing rather than with credit cards issued by major banks.
- Billing cycles vs. months. Pay close attention to the length of the promotional period. Some credit card issuers define their interest-free period as a matter of billing cycles, which are typically shorter than a calendar month. That means your 0% APR period could be slightly shorter than you’d assume. Twelve billing cycles, for example, will be little less than 11 months on a credit card with 27 days in each billing cycle. This is particularly important when you’re trying to pay off your credit card balance before the promotional rate expires.
- The 0% APR may only apply to one balance. With some credit cards, the 0% interest rate will only apply to purchases or balance transfers, and not both. If this is the case with the credit card you choose, use your credit card only for that type of transaction during the promotional period.
- Whether you can pay your balance before the promotional rate expires. If you can pay off your full balance before the promotional period ends, then you get the maximum benefit from your credit card. Consider your current income and expenses to figure out whether you can realistically pay off a balance while you still have the 0% APR promotion.
Remember that your 0% APR applies from the date you open your credit card, not the date you make transactions. For example, if you have a 12 month 0% APR credit card, purchases you make in the 8th month will only have 4 months of interest-free days.Back to top
Mistakes to avoid with a 0% APR credit card
- Waiting to make your balance transfer. If your 0% APR extends to balance transfers, read the fine print to see when you need to make your balance transfer to qualify for the rate. Many credit cards only offer the 0% APR for balance transfers when you transfer your balance within a certain timeframe.
- Taking a cash advance on your credit card. Even if the 0% APR applies to balance transfers and purchases, it won’t apply to cash advances. Taking out a cash advance on your 0% APR credit card cancels out the savings you receive on your other balances. If you pay only the minimum, your payment will go toward the balance with the 0% rate and your cash advance balance will continue to grow interest.
- Make purchases too late in the promotion period. Making your purchases soon after opening your account gives you more time to pay off your balance with no interest. If you make big purchases close to the time for the 0% APR to expire, you may not be able to pay off the balance before the regular rate becomes effective.
- Trying to earn rewards during the promotional period. Some 0% APR credit cards also come with a rewards program that will benefit you with points, miles, or cash back on your purchases. The ability earn rewards coupled with a 0% promotional interest rate can tempt you into spending more than you can afford to pay off before the promotional rate expires.
- Paying only the minimum. The minimum payment will only be a small percentage of your balance. Since you’re not paying interest, the full minimum payment will be applied to your balance. But that doesn’t mean you can get comfortable with paying just the minimum. If you want to pay off your full balance before the promotional period ends, you’ll need to increase your monthly payment. Divide your balance by the number of months left in the promotional period to figure out the payment you need to make to pay off your balance. For example, if you make a $2,500 balance transfer and have 12 months in your promotional period, you need to pay about $209 each month to pay your full balance before the 0% rate expires.
- Losing your 0% promotion. Some credit card mistakes can cause you to lose your 0% APR before it’s supposed to expire. Paying late and going over your balance are two actions that could cost you the promotional interest rate. Make sure you read through the terms carefully to understand what could cause you to lose your 0% promotional rate and avoid those mistakes. Once you lose the 0% APR, you are not likely to get it back. And, if the mistake goes on your credit report, it can keep you from qualifying for another 0% APR credit card.
As you consider getting a 0% APR credit card, keep in mind that you may need excellent credit to qualify for the best offers.Back to top