One of the most popular introductory offers credit card companies and retailers advertise is 0 percent APR—zero interest, for a limited period of time. But what does 0 percent APR mean? Does 0 percent APR mean no interest? What is an interest-free period?
These are probably just some of the questions you’re asking when trying to figure out if this perk is really all it’s cracked up to be. So let’s take a look at what 0 percent APR is, how to use a 0 percent intro APR card to pay off debt, what happens when your promotional APR ends and how to choose the best 0 percent APR card for your financial needs.
What is a 0 percent intro APR?
Before you can understand what a 0 percent APR is, you need to understand how APR works. APR is an initialism for annual percentage rate. It’s a metric that shows you the true cost of borrowing money. APR takes the loan interest rate and combines it with any additional loan-processing fees (such as the origination fee associated with a mortgage) to give you a complete and accurate cost of borrowing. It’s expressed as a percentage of the total size of your loan or outstanding debt.
Since credit cards don’t have loan-processing fees, a credit card APR is generally synonymous with the credit card interest rate. Since an APR is calculated on an annual basis rather than a daily one, your credit card APR is a complete look at how much it’s going to cost you to borrow money for an entire year.
Zero percent APR means that the money you are borrowing is available for no additional cost. You still have to pay back the money you borrowed, but there is no additional interest requirement or additional fees.
How does a 0 percent intro APR work?
In most cases, a 0 percent APR is a promotional interest rate that lets you borrow money at no cost for a fixed period. During this time, you’ll still need to make payments each month, but you won’t be accruing any additional interest costs if you only make the minimum payments.
The two most common instances where you’ll see a 0 percent APR promotion are on new purchases and credit card balance transfers.
0 percent intro APR on balance transfers
A balance transfer is when a credit card company allows you to use its card to pay off a credit card balance with another company. The best balance transfer credit cards include a 0 percent intro APR offer to help you save money on interest and give you over a year to pay off your debt. After the 0 percent APR period ends, any remaining balance on the card will start attracting interest.
By transferring a balance from a high-interest credit card to a balance transfer card with a 0 percent intro APR you can ensure your entire monthly payment amount goes toward your original balance, not added interest (at least while the intro APR lasts).
0 percent intro APR on new purchases
Issuers often offer 0 percent APR on new purchases as an incentive to sign up for a credit card. For example, a credit card might come with 0 percent APR on new purchases for the first 15 months. This means that during the first year and three months of card ownership, you will only have to make payments on the principal balance on the card (the actual amount you charged), not on additional interest.
0 percent intro APR vs. deferred interest
A very important distinction to be aware of is the difference between a 0 percent APR and a deferred interest offer. With 0 percent APR, there are no interest charges for the introductory period—ever. There is no secret clock running in the background adding up charges. The regular interest rate only kicks in on whatever balance remains outstanding at the end of the intro APR period.
Deferred interest, on the other hand, pushes off the interest payments to the end of the introductory period. If you pay off the entire balance by the end of the period, you won’t owe any of the interest. However, if you owe even a penny on the balance after the introductory period, you’ll now owe 100 percent of the interest costs that have accrued during the deferred interest period. Plus, interest will continue to accrue on your unpaid balance as you work to pay it off.
What happens when a 0 percent intro APR ends?
What happens when your 0 percent APR offer ends? When your interest-free period ends, your account converts to the terms outlined in your card agreement. You won’t owe any “back-interest”—but from that day forward, you’ll begin accruing interest charges on the outstanding balance in line with your agreement.
It’s important when picking out a credit card or financing a purchase that you look at the rates and fees after the 0 percent APR period. This becomes especially important if you don’t anticipate being able to pay off the money you borrowed before the zero-interest promotion ends.
How to choose a 0 percent intro APR card
The best zero-interest credit cards offer 0 percent intro APR rates that last for at least a year, giving you plenty of time to catch up on old debt or pay off a new purchase. That said, these kinds of zero percent APR offers aren’t always extended to every borrower. Generally, you’ll need good or excellent credit to qualify. So check your credit score before you apply, and consider building your credit before taking advantage of one of these top offers.
When choosing a 0 percent intro APR card, make sure you check not only the length of the intro interest rate but also the APR that will be applied after the promotional period ends. Even if you’re planning on paying off your purchases and balance transfers during the 0 percent APR period, life can happen—which is why it’s a good idea to be as prepared as possible.
Here are three of our favorite 0 percent intro APR cards:
Capital One Quicksilver Cash Rewards Credit Card
The Capital One Quicksilver Cash Rewards Credit Card offers 0 percent intro APR for 15 months on purchases (15.49 percent to 25.49 variable APR thereafter). Since this cash back rewards card also offers 1.5 percent cash back on every purchase, you can earn money on everything you buy while saving money on interest charges. That’s a win-win—and when you add in the $200 cash bonus you can earn after spending $500 in the first three months, the Capital One Quicksilver Cash Rewards card becomes a win-win-win.
Discover it® Cash Back Credit Card
The Discover it® Cash Back offers 0 percent intro APR for 14 months on both purchases and balance transfers (11.99 percent to 22.99 percent variable APR thereafter), making the Discover it Cash Back Card an excellent tool to help you pay off debt, fund the cost of a vacation and more. This rotating bonus category rewards card offers 5 percent cash back on popular spending categories that rotate every quarter (think Amazon.com, Walgreens, restaurants and grocery stores) for up to $1,500 in purchases per quarter (then 1 percent, activation required). In addition, you’ll earn 1 percent cash back on all other purchases—and thanks to Discover’s Cashback Match program, any cash back you earn during your first year as a cardholder will be matched at the end of the year.
Citi® Diamond Preferred® Card
The Citi® Diamond Preferred® Card offers 0 percent intro APR for 18 months on purchases and balance transfers (14.74 percent to 24.74 percent variable APR thereafter). While this card doesn’t offer any cash back rewards on purchases, the lengthy intro APR period gives you plenty of time to save money on interest charges, pay off transferred balances, fund a large expense and more.
Pros and cons of a 0 percent intro APR
- Can save money on interest charges
- Provides opportunities to catch up on debt with balance transfers
- Gives the ability to buy things now and pay later without additional costs
- May foster bad spending habits when used incorrectly
- Rates after the introductory period could be higher than standard credit card interest rates
- Offers likely require good to excellent credit
How to make the most of a 0 percent APR period
If you transfer a balance to a credit card with a 0 percent APR offer, try to avoid adding new debt to your balance transfer credit card—and try to avoid making purchases on your original credit card as well. Remember: When you transfer the balance of your credit card to a 0 percent APR offer, your initial credit card gets paid off. This can make it tempting to start putting charges back on that card, but that might keep you in debt longer.
Have a plan to take full advantage of your zero-interest period. Use the time to get ahead on payments and maximize your savings. Otherwise, you’re just pushing off the money you owe and not saving much at all.
Don’t use your zero-interest period as an excuse to buy more, or to spend money that you can’t pay back. Just because your credit card payments are lower right now doesn’t mean they’re always going to be. Once the introductory period ends, your balance starts occurring interest at the regular APR—which could be quite high.
The bottom line
When you use a 0 percent APR offer to your advantage, you can fund a large purchase, catch up on old debt or simply borrow money for free during the intro APR period. When used properly, 0 percent APR offers can provide convenience, relief and an avenue to get ahead on your finances—but this benefit is not a free pass to spend frivolously or buy things that you can’t afford. If you don’t pay off your purchases or transferred balances before your 0 percent APR offer ends, you could find yourself right back where you started.