What Does 0 Percent APR Mean? | Bankrate (2024)

Key takeaways

  • Zero-percent APR cards generally offer promotional periods between 12 and 21 months in length during which no interest is charged on your qualifying balance.
  • Many consumers use 0 percent APR cards to save on interest, pay off debt more quickly or catch up on their savings.
  • Zero-percent APR cards are typically only available to consumers with good or excellent credit, but all users need to be cautious about running up balances they can't pay off before the promotional period expires.

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. 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.

If the borrowed money has a 0 percent APR, no interest will be charged on that money for a fixed period of time.

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 set period of time. Since credit cards don’t have loan-processing fees, acredit card APR is generally synonymous with thecredit card interest rate. And since APRs are 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 a 0 percent APR offer really mean?

In most cases, a 0 percent APR is a special promotional interest rate. 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 qualifying credit card balance. During this period, you will still be required to make yourminimum payment each billing cycle, but you won’t be charged interest on any eligible balance you carry 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 more quickly, catch up on your savings and more.

Most cards offer agrace period during which you won’t pay interest on your purchases as long as youpay your credit card statement balance in full each billing cycle. 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 becharged interest on whatever balance you carry into the next billing cycle. That is unless you’re in the midst of a 0 percent APR period.

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

Abalance transfer is when a credit card company allows you to use its card to pay off a credit card balance with another company. Thebest balance transfer credit cards are generally available to those with good or excellent credit. They feature 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.

Bytransferring 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. You’ll most likely have to pay abalance transfer fee, which typically ranges from 3 percent to 5 percent of the balance transfer amount.

0% intro APR on new purchases

Some issuers offer a 0 percent APR on new purchases — generally for a limited amount of time — as an incentive to sign up for a credit card. For example, some of thebest 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 tofund a large purchase or pay for anunexpected medical expense, as long as you have aplan to pay off your debt before the 0 percent APR offer expires.

0% intro APR vs. deferred interest

An important distinction is the difference between a 0 percent intro APR and adeferred interest offer. With a 0 percent intro APR, there are no interest charges for the introductory period — ever. Theregular 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).

0% APR mistakes to avoid

When you’re taking advantage of a 0 percent APR offer, there are some mistakes that could ruin the sweet deal you’ve scored and send you back to paying the regular interest rate before the promo period expires. Avoid these slip-ups on your 0 percent APR credit card:

  • Missing a payment
  • Making a late payment
  • Waiting too long to transfer a balance
  • Overspending and coming up short on the minimum payment

When you miss a payment or make a late payment on a 0 percent APR credit card, the terms of the offer likely stipulate that the issuer could nullify your promotional offer. This also happens if you don’t make at least your minimum payment each billing cycle. If you’re using the 0 APR card to transfer a balance then you’ll want to make any balance transfers before the deadline to take advantage of the offer, which is typically 30 to 120 days after your card is issued. If you transfer the balance after that point, you’ll pay the regular interest rate.

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.

Beforechoosing 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. 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. It might be tempting to add new debt to the card on top of your balance transfer amount and startcarrying 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 ortransferred balances before your 0 percent APR offer ends, you could find yourself right back where you started.

What Does 0 Percent APR Mean? | Bankrate (2024)

FAQs

What Does 0 Percent APR Mean? | Bankrate? ›

Key takeaways

Is 0 percent APR good? ›

If you're disciplined to make on-time payments and pay off your balance before the intro period ends, then you will likely do well with a 0% APR credit card. However, if the 0% tempts you to overspend, you may face paying high interest charges if you're still carrying a balance after the intro period.

Does 0% APR mean no monthly payment? ›

Even with a 0% APR card, you'll still have to make monthly minimum payments — usually a small percentage of your balance. And if your payment is late, even by a single day, your card issuer could cancel the 0% offer and reset your card's interest rate to the ongoing APR.

Is 0% APR a trap? ›

A 0% APR credit card can be a great financial tool, but there are debt traps to be aware of when using one. Always make the minimum payments on your credit card to avoid consequences like late fees, damaged credit and penalty APRs.

What happens when 0% APR ends? ›

When your intro APR ends, your credit card's regular APR will kick in on any remaining balance and new balances. It's important to know when your promotional period ends so you can work on paying off your balance beforehand and avoid being surprised by mounting interest on a residual balance.

Why avoid zero percent interest? ›

Zero-interest loans, where only the principal balance must be repaid, often lure buyers into impulsively buying cars, appliances, and other luxury goods. These loans saddle borrowers with rigid monthly payment schedules and lock them into hard deadlines by which the entire balance must be repaid.

Does 0% APR affect credit score? ›

However, a 0 percent intro APR card can hurt your credit if it causes you to carry a higher balance than usual or if you carry your balance beyond the introductory 0 percent APR period. Applying for a 0 percent intro APR card could temporarily cause your credit score to drop.

What does 0 APR for 36 months mean? ›

Does 0% APR Mean No Interest? For car loans, 0% APR does indeed mean no interest is accrued. Unlike limited promotional 0% APR offers from credit cards, a 0% APR car loan is for the contractual length of the loan. That is, 48 months if it's a 48-month loan, 36 months for a 36-month loan, and so forth.

Are 0% credit cards worth it? ›

Credit cards with 0% interest on purchases can be a good way to spread cost and build up your credit score. For example, you could use one to book flights, pay for a holiday or cover the cost of home improvements and then pay it back in monthly repayments.

Is it bad to max out a 0 APR credit card? ›

Case in point, carrying a balance of $2,000+ on a 0% APR credit card could negatively impact your credit, even if you end up paying it in full before the promo period ends. That's because high card balances affect your credit utilization ratio, which makes up 30% of your overall credit score.

Why do companies offer 0 APR? ›

A 0% APR for purchases gives you the ability to buy something with your card and then pay it off over time without interest. Card issuers offer 0% periods for purchases as a way to attract new customers and get them used to using the card.

How do banks make money on 0% APR? ›

Then they make money from interchange fees that retailers pay on every purchase that a consumer charges to a credit card, from balance-transfer fees, and from customers who don't pay off the balance before the introductory period ends, thus having their remaining balances subject to the banks' regular interest rates.

Does 0% APR mean I pay no interest? ›

What Does 0% APR Mean? Spelled out, APR means annual percentage rate. In the context of a credit card, the APR is the same as the interest rate. “Zero percent APR” means no interest is being charged.

How do you take advantage of 0 percent APR? ›

Create a payment plan for yourself immediately after you open the card and make the purchase. Keep in mind: The minimum payment must be met each month. If you don't pay the minimum, you could lose your 0% intro APR and have to pay late fees.

What is better 0% APR or no annual fees? ›

A 0% APR credit card can work better for you if you plan on making a large purchase and don't anticipate paying the balance anytime soon. However, if you plan on paying the balance in full after each billing cycle and want to minimize costs, then a no annual fee card would be recommended.

Is 0% interest rate bad? ›

With zero percent financing, you're more likely to impulse buy. And since you feel like you're saving money with the 0% APR, it's easier for the salesperson to talk you into overspending on fancy upgrades and extra features you simply don't need (like extended warranties or gap insurance).

How much do you save with 0% APR? ›

You could save hundreds or even thousands of dollars with a credit card's 0% intro APR offer. This is true for 0% APR offers on both balance transfers and new purchases, though the exact amount you'll save depends on the amount you're paying off and how much you can afford to pay each month.

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