What does 0% APR mean?

An annual percentage rate, or APR, is a metric that shows the true cost of borrowing money through a credit card, loan or another line of credit. Thus, a 0 percent APR means that no interest will be charged on the borrowed money for a fixed period of time.

In the case of mortgages and loans, for example, the 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.

Zero-interest credit cards, or 0 percent intro APR credit cards, allow cardholders to make payments with no interest on purchases, balance transfers or both for a predetermined period of time. 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 annually rather than daily, your credit card APR is a complete look at how much it’s going to cost you to borrow money for an entire year.

But is a 0 percent APR credit card right for you? In this guide, we’ll help you decide by analyzing how to make the most out of a 0 percent APR period.

How does a 0% intro APR work?

You’ve probably seen the tempting 0 percent introductory APR offers that credit card companies use to attract new cardholders. But what does 0 percent APR really mean?

The benefit of credit cards offering a 0 percent intro APR is that you can borrow money for a limited amount of time — usually between 12 and 21 months — without accruing any interest on your credit card balance. You still have to pay back the money you borrow, but there is no added interest until the introductory period ends. If you pay off your balance before the intro APR ends, you avoid interest entirely — allowing you to pay off debt quicker, catch up on your savings, and more.

If you pay your credit card statement balance in full each billing cycle, you’ll never have to pay interest. In this case, the APR doesn’t really matter. But if you just make the minimum payment or don’t pay off your entire statement balance, you’ll be charged interest on whatever balance you carry into the next billing cycle.

In most cases, a 0 percent APR is a special promotional interest rate that allows you to borrow money without incurring interest for a specific length of time. During this period, you will still be required to make your minimum payment each billing cycle (or more), but you won’t be charged interest on any balance you carry.

The two most common 0 percent APR offers are for new purchases and balance transfers. Credit cards will often offer both to new cardholders.

0% 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 are generally available to those with good or excellent credit. They typically include a 0 percent intro APR offer to help you save money on interest and often give you a year (or more) to pay off your debt. After the 0 percent APR period ends, any remaining balance on the card will start accruing interest.

By transferring a balance from a high-interest credit card to a card with a 0 percent intro APR, you can ensure your entire monthly payment amount goes toward your original balance and not to added interest — at least while the intro APR lasts.

0% intro APR on new purchases

Some issuers offer a 0 percent APR on new purchases or a purchase APR — generally for a limited amount of time — as an incentive to sign up for a credit card. For example, some of the best zero-interest APR cards come with a 0 percent APR on new purchases for the first 15 months. During that time, you will only have to make payments on the principal balance on the card (the actual amount you charged) — not on additional interest.

This is a great way to fund a large purchase or pay for an unexpected medical expense, as long as you have a plan to pay off your debt before the 0 percent APR offer expires.

0% intro APR vs. deferred interest

An important distinction to be aware of is the difference between a 0 percent intro APR and a deferred interest offer. With a 0 percent intro APR, there are no interest charges for the introductory period — ever. The regular interest rate only kicks in on whatever outstanding balance remains at the end of the intro APR period; there’s no secret clock running in the background adding up charges.

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 expires, you’ll 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.

As such, deferred interest offers are rarely a good idea, unless you’re certain you will be able to pay off all of the balance before the deferred interest period expires (and you double-check there are no errant pennies owed).

What happens when a 0% intro APR ends?

When your 0 percent APR offer ends, your account converts to the terms outlined in your card agreement. You won’t owe any back interest — as long as there’s no deferred interest associated with your card’s offer — but you’ll begin accruing interest charges on the outstanding balance from that day forward.

Before choosing a 0 percent APR credit card or financing a purchase, it’s important to understand the rates and fees that apply after the introductory period expires. This is particularly critical if you don’t anticipate being able to pay off the money you borrowed before the end of the promotional period.

With that said, when used responsibly, there aren’t too many drawbacks to a zero-interest credit card. Understanding the pros and cons of 0 percent APR credit cards can help you decide if they’re a good choice for you.

Tips for maximizing zero-interest credit cards

A zero-interest credit card can be an excellent addition to your financial toolkit. However, understanding what a 0 percent APR card is and knowing how to maximize one are different challenges. Here are some tips for making the most of your zero-interest credit card:

• Pay off your balance before the promotional period ends. It may seem obvious, but the best way to maximize your 0 percent APR card is to pay off your balance before the introductory period ends. That way, you’ll be able to access the credit you need without paying a penny of interest on it. It’s a win-win.
• Avoid adding new debt to a balance transfer. Transferring a balance to a credit card with a 0 percent APR offer is a great way to pay less in interest. Your initial credit card gets paid off, allowing all of your payments to go directly toward the balance and not interest. It might be tempting to add new debt to the card and start carrying a balance, but this might keep you in debt longer. Plus, if you don’t pay off the balance before the intro period ends, you’ll end up paying interest on the balance and destroy what you were trying to do in the first place.
• Use your 0 percent APR period wisely. 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.
• Avoid the temptation to overspend. Don’t use your zero-interest period as an excuse to buy more or 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. Remember, once the introductory period ends, your balance starts accruing interest at the regular APR.

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 without paying interest. When used properly, 0 percent APR offers can provide convenience, relief and an avenue to get ahead on your finances.

Of course, 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.