Six facts you need to know about 0% APR credit cards
Seeing an offer for an interest-free credit card for the next year can be appealing, especially if you plan to make large purchases or transfer the balance from another credit card. However, there are a few things you need to know before signing up for a 0% APR credit card.
We’ve highlighted the most important facts that will help you make an informed decision on whether or not to open one of these credit cards.
What does 0% APR mean?
The annual percentage rate (APR) is the interest charged each year on the balance you hold on a credit card. Your standard APR on purchases can vary depending on your creditworthiness, but many credit cards offer an introductory offer of 0% APR for a period of time, usually around 12 months. Therefore, you will not have to pay interest on any balances you carry during this period.
What is the advantage of an interest-free credit card? If you have a lot of credit card debt and are paying a significant amount of interest, it might be possible to open a new 0% APR credit card and transfer your debt. This way, you will have about 12 months to pay more of your principal debt rather than the interest.
Also: The best business credit cards with 0% APR
Six things to know about 0% APR credit cards
Regardless of the introductory offer, it’s important to understand the ins and outs of any credit card before applying. A 0% APR card may seem like a great deal, and it could be a good choice. But take a look at these six facts before you apply.
1. The card may not apply 0% APR to any
The 0% APR rate can apply to purchases or balance transfers, but not always to both. Look at the card’s Schumer box — the table that lists all of the terms, rates, and fees associated with an account — located in the fine print of every credit card agreement. You’ll see what the 0% APR applies to and for how long, as well as the annual fee, foreign transaction fee, and APR after the introductory period ends.
If you plan to transfer your debt from another credit card, make sure the 0% APR applies to balance transfers. Otherwise, it may not be worth it.
2. You could lose your 0% APR by missing a payment
Although you don’t earn interest by not paying your credit card bill, you still have to make a payment each month for at least the minimum due. If you miss a payment, you could lose your introductory offer even for a single day. Set up automatic payments for the minimum amount so you don’t forget to pay.
3. Prepare for the standard interest rate once your introductory offer ends
Make sure you know how much the interest rate could increase after the 0% introductory offer ends. Looking at the Schumer box, you will see the standard APR range offered by the card. If the standard interest rate is much higher than your current card after the introductory period ends, it may not be worth switching cards.
To help you visualize how much you’ll need to budget, make a schedule showing how much you’ll need to pay each month to eliminate debt (or significantly reduce it) by the time the regular APR arrives.
4. To qualify for the card, you will generally need good to excellent credit
Anyone requesting a zero rate credit card will not be accepted. You will need a good to excellent credit score for the card provider to open an account for you. If you have a credit score above 650, you are generally considered a good candidate, but a FICO score above 700 makes you more likely to be accepted. Before requesting a rigorous credit check, which could affect your score, make sure you have the correct credit score range.
Also: The best credit cards for good credit: Reap the rewards
5. You might not get as much credit as you ask for
If you have $8,000 in credit card debt and you apply for an interest-free balance transfer card with a plan to transfer all of your debt, you may not be able to. Typically, you don’t know how much your line of credit will be until it’s been approved. So you can only be approved for a $5,000 line of credit and can only transfer that amount, leaving you with $3,000 to support on the other card.
6. A balance transfer may incur a fee of up to 5% of the total
When you transfer a balance from one card to another, you may end up paying a fee of up to 5% of the entire transfer. Therefore, if you transfer $8,000 and the fee is 5%, you will pay an additional $400. However, some cards offer lower initiation fees if you transfer within a specific time frame. Make sure you know how much the transfer itself will cost you before applying for the card to verify that it will be worth it.
We’ll first need to address two common misconceptions before explaining what happens when your introductory 0% APR runs out.
You will be charged retroactive interest
Many people think that if you carry a balance beyond the 0% introductory period, you will have to pay interest for the duration of the 0% introductory period. Although this is the case with some store credit cards, as stated by the Consumer Financial Protection Bureau, this is not the case with most major credit cards.
Instead, these cards allow you to get the stated number of months without interest. Then, when the 0% APR intro period expires, you will be charged interest on all subsequent months. This means that if you sign up for a card with an introductory APR of 0% over 12 months, you will start paying interest for 13 months and more.
There are always hidden costs
Another common misconception a lot of people have about around 0% APR credit cards is that you’re going to have to pay a bunch of hidden fees because they think the credit card provider has to figure out a way to make up for it. interest it is not. charge you. While there may be fees, such as balance transfer fees or annual fees, you can easily spot these fees in the card’s terms and conditions. And if you don’t know where to look, you can always check out our credit card reviews, as we make sure to report these charges.
What actually happens when your 0% introductory APR runs out?
Believe it or not, nothing too dramatic happens when your 0% APR intro period runs out. Even though you will have to pay interest for each month from that date, you are not expected to repay interest on any balance owing or anything like that.
Ideally, you’ve already paid off the balance by the time the 0% introductory APR runs out, but if not, you have some options. The first thing to do is to assess your current situation. Be sure to look at how much you still owe and determine if you can reasonably pay it off over the next month. If you can’t afford to pay off the remaining balance in a short period of time, you can transfer the balance to a new card with a 0% introductory APR on balance transfers.
Even though most cards will charge you a balance transfer fee, which is usually 3-5% of the total transfer amount, it may be worth it since you won’t pay any interest. Just make sure you are able to repay the balance within the 0% intro APR period, so you don’t end up in a similar situation (due to debt) when the 0% intro APR of this card runs out.
Also: Capital One Platinum Credit Card Review: Building Positive Credit
Are all introductory 0% APR cards the same?
Although it may look different, not all 0% intro APR credit cards are created equal, as they are designed to provide the cardholder with different benefits for various purposes.
For example, if you’re making a large purchase or planning to fund a major event like a wedding, a card with a 0% introductory APR on purchases is the best option for you. Why? You will have an extended period of time to refund all purchases you make, without any interest.
On the other hand, if you have a balance on a high-interest credit card, you’ll want to opt for a card that offers a 0% introductory APR on balance transfers. Then you can transfer the balance from the high interest card to the new card without paying interest for an extended period.
Those who wish to transfer a balance and incur charges on the card without paying interest on either transaction will want to choose a card with both an introductory APR of 0% on purchases and transfers balance.
[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]