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You’ve probably heard the tempting tagline credit card companies and retailers advertise for new cardholders: 0 percent intro APR. But what does it really mean?
The benefit of a card with 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 intro APR period ends. If you pay off your balance before the intro APR ends, you avoid interest entirely.
Is a 0 percent APR 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.
What is a 0 percent intro APR?
To understand what a 0 percent intro APR is, you need to know how APR works. APR stands for annual percentage rate. It’s a metric that shows you the true cost of borrowing money, whether that’s through a credit card, loan or another line of credit.
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.
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.
How does a 0 percent intro APR work?
If you pay your credit card statement balance in full each billing cycle, you’ll never have to pay interest, so 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 promotional interest rate that lets you borrow money at no cost for a fixed period, often between 12 and 21 months. During this time, you still need to make at least the minimum payment each billing cycle, but you won’t accrue any interest costs.
The two most common 0 percent APR offers are for new purchases and balance transfers. Credit cards will often offer both to new cardholders.
Zero 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 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).
Zero percent intro APR on new purchases
Some issuers offer a 0 percent APR on new purchases as an incentive to sign up for a credit card. For example, a credit card may come with a 0 percent APR on new purchases for the first 15 months. During the first year and three months after opening the account, you will only have to make payments on the principal balance on the card (the actual amount you charged) — not on additional interest.
Zero percent 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 balance remains outstanding at the end of the intro APR period. There is 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, 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 percent 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, but from that day forward, you’ll begin accruing interest charges on the outstanding balance.
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 is critical if you don’t anticipate being able to pay off the money you borrowed before the 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 0 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.
It’s also a good idea to think about long-term value. If you’re in a lot of debt, you might prioritize the length of the intro APR offer. But if the difference between 12 and 21 months isn’t that important to you, consider value-adds that will outlive the intro APR offer, like rewards rate or additional benefits.
Pros and cons of a 0 percent intro APR
When used responsibly, there aren’t too many drawbacks to a 0 percent intro APR credit card. However, they aren’t for every situation. Here are a few pros and cons to decide if a 0 percent intro APR is right for you:
Pros of a 0 percent intro APR
Save money on interest charges: The average credit card interest rate is currently hovering over 17 percent, so a 0 percent APR period can help you save a considerable amount of money on interest.
Catch up on debt with balance transfers: When you consolidate debt with a balance transfer credit card, paying down the balance is so much simpler because every penny you pay goes directly toward the principal balance.
Buy now and pay later without additional costs: If you know you have a large expense coming up, a 0 percent intro APR can make it all the more possible because you can take your time paying it off. However, make sure you can pay off the balance before the regular APR kicks in.
Cons of a 0 percent intro APR
May foster bad spending habits when used incorrectly: Don’t allow a false sense of security to get the best of you. Carrying a balance with a 0 percent APR period can bring a lovely sense of relief, but that relief will end in regret if you don’t work on paying off the balance before time is up.
Offers likely require good to excellent credit: Options in this category may seem limiting for individuals with poor credit histories, and it may be for the best. If you have a hard time paying down debts or you’ve accumulated too many lines of credit, consider working on your credit score before taking on another credit card.
New credit cards ding your credit score: Applying for a new credit card results in a hard inquiry on your credit report. This dings your credit score, but only temporarily. Take the time to research credit cards, and only apply for the one credit card you think will work best for you and your financial situation.
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, avoid adding new debt to your balance transfer credit card. 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 carrying a balance on that card, but that might keep you in debt longer.
Secondly, 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.
And lastly, 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. 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.
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.