They go by different names — 0 percent APR credit cards, zero-interest credit cards, introductory APR credit cards — but they all have the same purpose: a 0 percent intro APR is a temporary break from interest charges as you steadily pay off large credit card purchases or balance transfers.
Zero-interest credit cards typically offer an intro APR on purchases and/or balance transfers. Even if a single card has both types of intro APRs, the offers can have different lengths or requirements, so make sure to check the terms.
How does credit card interest work?
Interest is essentially the cost of borrowing money. It's a fee that is a small percentage of your unpaid balance. The higher the balance, the higher the fee though the percentage can be the same. You won’t have to pay interest on your credit card purchases if you keep your balance paid off in full every month. If you still have a balance on your credit card past the grace period of a billing cycle, the balance will accrue interest.
The amount of interest you’ll need to pay is based on your card’s annual percentage rate (APR), also known as an interest rate. When you are approved for a credit card, the issuer sets both your credit limit and ongoing interest rate (your interest rate after your intro period ends). The ongoing interest rate is often variable, meaning it can change or be different from person to person depending on several factors. The issuer considers your credit score, payment history, number of open credit accounts and other information about your personal credit use — so the higher your credit score and the lower your credit usage, the lower your interest rate.
Variable APRs aren’t an issue if you pay off your balance every month (since you won’t owe interest payments), but an increasing APR can be a problem if you tend to carry a balance on your card.
Several other external factors also play a part in credit card APR, including government regulators and banks’ lending standards. Due to recent interest hikes by the Federal Reserve, you’ll see a general increase in rates across most cards. Even worse, a penalty APR could apply if you have a late payment more than 60 days overdue. Your APR for purchases may differ from your APR for balance transfers, but the lower the APR, the better.
The good news is that you can use a credit card's 0 percent intro APR offer to temporarily avoid interest charges during the introductory period before the regular or ongoing APR takes effect.
How your credit score affects your interest rate
Your credit card’s APR is set when you are approved for the card. The lowest APRs often go to those with good or excellent credit scores, while cards available with a bad or fair credit score tend to carry very high APRs. In other words, the lower your credit score, the higher the interest rate.
This means that even if you can qualify for a card, you may want to rethink applying if your credit score is close to its minimum credit requirement. For example, if a credit card has an 18 percent to 27 percent APR and is available with a good-to-excellent credit score, a 670 FICO score (teetering on the edge of “prime credit”) may only qualify you for a 27 percent APR. Meanwhile, an excellent FICO score (800 or higher) has a better chance of landing you the low-end APR of 18 percent.
If you only qualified for a 27 percent APR and needed to carry a balance occasionally after your intro APR, this card would not be a good option, even though you technically have a “good” credit score.
Here’s a quick breakdown using the Bankrate credit card payoff calculator:
| 18% |
$300 |
$275 |
| 27% |
$456 |
$288 |
What’s the difference between interest and APR?
In the case of credit cards, the term interest rate is interchangeable with APR. Both refer to the interest rate that is applied to your credit card.
When you open an account with a credit card issuer, they may offer you a 0 percent introductory (APR) period or no-interest financing on purchases made during that time frame. Credit card companies will often offer this type of interest-free intro for anywhere from 12 to up to 21 months.
While there are usually no upfront fees or penalties associated with this type of promotion, be aware that it won’t last forever. When your 0 percent intro APR offer ends, any remaining balance will start gaining interest at its regular rate — typically between 17 percent and 30 percent — plus any other applicable fees or charges (such as late payments).
Terms to Know
- Purchase APR: A temporary interest offer, in which no interest is automatically applied to new purchases made on the card. These offers typically last 12 to 15 months, although zero-interest cards increase the timeframe to 18 to 21 months.
- Balance Transfer APR: A temporary interest offer, in which no interest is applied to the debt balance transferred onto the card from another card. These offers typically last 12 to 15 months, although zero-interest cards increase the timeframe to 18 to 21 months.
- Variable APR: The range of possible credit interest rates on the card. This rate is based on a cardholder's credibility and can change with the prime rate, which is decided by the Federal Reserve.
- Ongoing Interest Rate: The interest rate that will apply to your balance after the introductory APR period ends.
