How Do 0% Credit Cards Work?

Whatever your goal, credit cards don’t offer 0% interest forever – once the offer expires, the card’s ongoing interest rate will apply. Because of that, using these cards successfully can require a lot of discipline. Without it, there is less advantage to a 0% introductory APR card, and you may end up spending more than you intended.

For example, it’s generally wise to avoid making a large purchase with the card and merely hoping you can pay it off before the card starts charging interest. And, unless you have a very small balance, it’s usually best to avoid simply paying the minimum due each month. Instead, grab your calculator and figure out how much you’ll need to budget each month to pay off the balance during the introductory period. For example, if your card offers 12 months of 0% interest and you build up a $5,000 balance, you’ll need to budget about $417 per month.

There are a number of 0% introductory APR interest credit cards out there, but they are not identical. That’s why it’s important to be sure that you fully understand the card’s terms and conditions. Here are some things to look for:

• When does the introductory period end? No matter which card you choose, sooner or later, the 0% interest period will expire, and you’ll start being charged interest. Don’t skim the terms and conditions and assume the number you see specifies months – some cards measure the 0% interest period in billing cycles. That distinction could result in a shorter or longer interest-free period.
• When you start paying interest, how much will it be? When the promotional 0% interest period ends, the card’s ongoing interest will kick in. The best way to avoid purchase APR is by paying the balance off before the introductory period ends.
• Are you really getting 0% interest? Or just deferred interest? Let’s say you got a 0% introductory interest credit card and transferred a $2,000 balance to it. At the end of the promotional period, you still have a $400 balance. A true 0% introductory interest card will begin charging interest the first day after the promotional period and only on the $400. A deferred interest card will charge interest on the full $2,000 balance and for the entire length of the promotional period retroactively. In this instance, you won’t have saved anything.
• What fees are you paying? The good news is you aren’t incurring interest charges. However, additional fees may still apply. These could vary depending on the card but some examples of additional fees and charges include an annual fee, a balance transfer fee (typically 3%-5% of the balance), foreign transaction fees, and late payment fees.
• If you’re not careful, might the deal be called off? Some interest-free card agreements permit the creditor to end the promotional interest-free period earlier than scheduled if, for example, you exceed your credit limit or make a late payment, even by one day. To keep that from happening, it’s a good idea to pay careful attention to what you charge and set up automatic payments – or set a reminder on your smartphone – so you don’t miss a payment.

There are a few additional considerations you’ll want to keep in mind when applying for a 0% introductory APR credit card.

• Your credit history matters. As with many things in life, good credit pays off. Usually, if your credit score is 700 or better, you’re most likely to be approved. But if your credit is fair or poor, you may not qualify. If your score is fair, between 630 and 689, try applying through a credit union or a bank with which you already have a relationship. If your score is less than 630, you may not qualify for a 0% introductory APR card.
• All cards have limits. The 0% introductory interest credit card issuer has the right to determine how much credit to extend, and it may not be as much as you want. Typically, you won’t find out what your credit limit is until after you’re approved.