Seeing an offer for a no-interest credit card for the next year can be enticing, especially if you plan to make some big-ticket purchases or transfer over a balance from another credit card. However, you should know a few things before you take out a 0% APR credit card.
We highlighted the most important facts that will help you make an informed decision about whether or not to open one of these credit cards.
What does 0% APR mean?
Annual percentage rate (APR) is the interest charged each year on the balance you hold on a credit card. Your standard APR on purchases can vary depending on your creditworthiness, but many credit cards have an introductory offer of 0% APR for a certain amount of time, usually around 12 months. As a result, you won't have to pay any interest on balances you carry during this period.
What is the benefit of a no-interest credit card? If you have a lot of credit card debt and are paying a large amount in interest, it might be possible to open a new 0% APR credit card and switch your debt over. That way, you will have 12 or so months to pay more toward your principal debt rather than interest.
Also: The best business credit cards with 0% APR
Six things to know about 0% APR credit cards
No matter the introductory offer, it's important to understand the ins-and-outs of any credit card before you apply. A 0% APR card may seem like a great offer, and it might be a good fit. But take a look at these six facts before putting in your application.
1. The card might not apply 0% APR to everything
The 0% APR rate might apply to purchases or balance transfers, but not always both. Look at the card's Schumer box -- the table that lists all the terms, rates, and fees associated with an account -- located in the fine print on each credit card agreement. You'll see what the 0% APR applies to and for how long, as well as the annual fee, the foreign transaction fee, and the APR after the introductory period ends.
If you plan to transfer your debt from another credit card, make sure that the 0% APR applies to balance transfers. Otherwise, it may not be worth your time.
2. You could lose your 0% APR by missing a payment
Although you won't be racking up interest by not paying your credit card bill, you still have to make a payment each month for at least the minimum due. If you miss one payment, you could lose your introductory offer even by a single day. Set up automatic payments for the minimum amount to keep yourself from forgetting to pay.
3. Prepare for the standard interest rate once your intro offer ends
Make sure you know how much the interest rate could go up once the 0% introductory offer ends. By looking at the Schumer box, you'll see the range of standard APRs the card offers. If the standard interest rate is much higher than your current card after the intro period ends, it might not be worth switching cards.
To help visualize how much you'll need to budget, set up a calendar with how much you will have to pay each month to get the debt gone (or severely diminished) by the time the regular APR hits.
4. To qualify for the card, you'll typically need good to excellent credit
Not everyone who applies to a zero-interest credit card will be accepted. You'll need a good to excellent credit score for the card provider to give you an account. If you have a credit score above 650, you're generally considered a good applicant, but a FICO score above 700 makes you the most likely to be accepted. Before you apply for a hard credit check, which could affect your score, make sure you have the right range of credit scores.
Also: The best credit cards for good credit: Reap the rewards
5. You might not get as much credit as you apply for
If you have $8,000 of credit card debt and apply for a zero-interest balance transfer card with a plan to switch over all your debt, you may not be able to. Typically, you don't find out how much your credit line will be until after you are approved. Thus, you may only be approved for a $5,000 credit line and can only transfer that amount -- leaving you $3,000 to take care of on the other card.
6. A balance transfer can carry a fee of up to 5% of the total
When you transfer a balance from one card to the other, you can end up paying up a fee of up to 5% of the entire transfer. Therefore, if you transfer $8,000 and the fee is 5%, you'll pay an additional $400. Some cards offer lower introductory fees if you transfer within a specific period, though. Make sure you know how much the transfer itself will cost you before you apply for the card to verify that it will be worth your money.
We'll first need to address two common misconceptions before we explain what happens when your 0% intro APR runs out.
You'll be charged back-interest
A lot of people think that if you carry a balance past the 0% intro APR period, you'll be required to pay back interest for the length of the 0% intro APR period. Although this is the case with some store credit cards, as detailed by the Consumer Financial Protection Bureau, this isn't the case with most major credit cards.
Instead, these cards allow you to get the stated amount of months with no interest. Then, when the 0% intro APR period expires, you'll be charged interest on all months moving forward. This means if you sign up for a card with a 12-month 0% intro APR, you'll start paying interest for months 13 and on.
There are always hidden fees
Another common misconception many people have about 0% intro APR credit cards is that you're going to be charged a bunch of hidden fees, as they believe the credit card provider needs to find a way to make up for the interest it isn't charging you. While there may be some fees, such as a balance transfer fee or an annual fee, you can easily spot these fees under the card's terms and conditions. And if you're not sure where to look, you can always check our credit card reviews, as we make sure to point out such fees.
What actually happens when your 0% intro APR runs out?
Believe it or not, nothing too dramatic occurs when your 0% intro APR period runs out. Even though you will have to pay interest for every month from that date on, you are not expected to pay back interest on any balance owed or anything like that.
Ideally, you've already paid the balance off by the time the 0% intro APR runs out, but if you haven't, there are some options for you. The first thing you'll want to do is evaluate your current situation. Make sure you look at how much you still owe and determine if you can reasonably have it paid off within the next month or so. If you can't afford to pay the remaining balance in a short amount of time, you can transfer the balance to a new card with a 0% intro APR on balance transfers.
Even though most cards will charge you a balance transfer fee, which is usually 3% to 5% of the total transfer amount, it may be worth it since you won't be paying anything in interest. Just make sure you're able to pay off the balance within the 0% intro APR period, so you don't find yourself in a similar situation (owing to a debt) when that card's 0% intro APR runs out.
Also: Capital One Platinum credit card review: Build positive credit
Are all 0% intro APR cards the same?
Although it may not seem this way, all 0% intro APR credit cards are not created equal, as they are designed to give the cardholder different perks for varied purposes.
For example, if you're making a large purchase or plan to fund a major event like a wedding, a card with a 0% intro APR on purchases is the best option for you. Why? You'll get an extended period of time to pay off any purchases you make completely interest free.
On the other hand, if you're carrying a balance on a high-interest credit card, you'll want to opt for a card that offers a 0% intro APR on balance transfers. Then, you can transfer the balance from the high-interest card to the new card without paying interest for an extended period of time.
Those who want to transfer a balance and make some charges to the card without paying interest on either transaction will want to choose a card with both a 0% intro APR on purchases and balance transfers.
[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]