What is APR and how to use introductory rates to save on interest expenses

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If you’ve ever considered getting a credit card, you may have wondered what APR is. APR, which stands for annual percentage rate, is a numeric representation of your interest rate that is presented as a percentage.

The average credit card interest rate is over 17%. Revolving credit card debt carried on a credit card with a 17% APR would be charged this rate over the course of a year. But, even though APRs are formulated and presented on an annual basis, credit card interest is calculated daily.

With that in mind, you can find out how much interest you’re paying daily by dividing your interest rate by 365 — the number of days in a year. With a 17% APR, your daily interest rate would be .046575%.

What is an introductory APR?

While the average APR is rather high, some credit cards offer an introductory APR that is significantly lower — even as low as zero. Balance transfer cards are the most popular options that come with this feature, many offer 0% APR on purchases and/or balance transfers for up to 21 months.

With an introductory APR offer, you will pay the lower APR for as long as the offer lasts. If you sign up for a balance transfer card that offers 0% APR on balance transfers for 15 months, for example, the balances you transferred to that card would accrue zero interest for 15 months. Once the introductory period is over, the card’s interest rate would reset to the standard rate they offer.

Here’s a good example: The Chase Slate® credit card offers 0% APR on purchases and balance transfers for 15 months. You’ll also pay no annual fee for this card, along with no balance transfer fee on balances transferred within the first 60 days of account opening.

If you signed up for this card now, you could transfer balances within 60 days without a fee and enjoy a zero-interest period on balance transfers and purchases for 15 months. Once the 15 months was up, your interest rate would reset to the card’s standard rate. Currently, the rate is a 16.74% to 25.49% variable APR depending on your creditworthiness.

How to use an introductory offer to your advantage

The example above should easily illustrate why you would want one of these cards. With 0% APR on purchases and balance transfers, you could accomplish several different goals. For example:

  • You could pay down debt without interest and at a faster rate. Considering the average credit card charges an APR over 17%, you could save considerable sums of money with a 0% APR credit card. And since your entire monthly payment would go toward your balance (and not interest payments), you have the potential to pay down debt faster.
  • You could pay off a large purchase slowly and without interest. Credit cards that offer 0% APR on purchases can work as an interest-free, short-term loan. Charge a large purchase like furniture or appliances and pay down the charges without interest during your card’s introductory APR.

What to watch out for

While the scenarios above can be fruitful, it’s important to understand the risks that come with introductory APR offers. Here are a few pitfalls to watch out for:

  • Not paying your debt off before your offer ends: Remember that introductory offers don’t last forever and that your interest rate may be high after your offer ends. Make sure to pay off all your debt — or as much as you can — while your introductory offer lasts.
  • Fees and penalties: Cards with low introductory interest rate offers are not free of fees. You may still be charged fees for late payments or for spending more than your limit, for example. Also, note that some cards charge a penalty APR if you make a late payment.
  • Balance transfer fees: Many cards that offer an introductory APR for balance transfer fees also charge a 3% or 5% balance transfer fee you must pay upfront
  • Spending with a credit card with 0% APR on balance transfers but not purchases: While some cards offer 0% APR on balance transfers and purchases, some only extend the offer to balance transfers. If you sign up for a card like this and use it for a balance transfer and for purchases, you will pay interest on those purchases. Not only that, but you will be charged interest from the first day of each purchase since carrying a balance (your balance transfer) causes you to lose your grace period.

Best 0% APR offers to consider

We already mentioned the Chase Slate® as a solid 0% APR credit card. Here are a few more cards to consider:

  • Discover it® Balance Transfer: The Discover it® offers an intro 0% APR on purchases for 6 months, 0% APR on balance transfers for 18 months, and no annual fee (after the introductory period a variable APR rate of 13.49%-24.49% applies). A 3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)* applies. However, you earn 5% back on your first $1,500 spent in categories that rotate each quarter and 1% back on all other purchases, but you must enroll. Discover will also Match all the rewards you earn the first year.
  • Capital One® Quicksilver® Card: With the Capital One® Quicksilver® Card, you’ll get 0% APR on purchases and balance transfers for 15 months (with a variable APR rate of 15.74% – 25.74% after that introductory period). There’s no annual fee and you earn 1.5% cash-back for every purchase you make. A 3% balance transfer fee applies.

Who should take advantage of a 0% APR offer?

Credit cards with introductory offers are best for people who have a specific plan to use them. If you need to consolidate high-interest debt to secure a lower interest rate, for example, these offers can work quite well. They are also ideal for consumers who need to make a large purchase and pay it down over time.

Make sure to compare cards with introductory APR offers in terms of the length of this benefit, their fees, and any rewards they offer before you sign up.

Editorial disclosure: All reviews are prepared by Bankrate.com staff. Opinions expressed therein are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including card rates and fees, presented in the review is accurate as of the date of the review. Check the data at the top of this page and the bank’s website for the most current information.

Don’t fall prey to interest rate payments. Check out Bankrate’s complete catalog on credit card APR advice and learn how to finance your next purchase with what our experts have rate to be the best 0% APR credit cards.