How 0% intro APR offers work
Every 0% APR credit card has an introductory APR and a standard APR. You can see both in the card's rates and fees. These are available online through the card issuer's website, and if you get the card, you'll also get a copy of the rates and fees when you receive it in the mail.
The introductory 0% APR applies for the length of the intro period. During that time, interest charges are waived. After that, the standard APR applies to any remaining balance and on transactions going forward.
While 0% APR cards waive interest during the intro period, there is another type of no interest offer called deferred interest. It's important to know the difference and to not get these two confused, because it could cost you money.
Waived interest vs. deferred interest
Deferred interest means interest charges are only deferred until the end of the introductory period. If you pay off the full balance within that time frame, then you won't be charged any interest. But if any balance is left over, then you'll be charged interest on the entire amount going back to when you made the purchase.
Let's say you have the choice of financing a $1,000 purchase with a 0% APR credit card or a deferred interest offer. Each of them offer no interest for 12 months. Here's the difference:
- 0% APR credit card: After 12 months, you'd be charged interest on any remaining credit card balance. If you've paid off $900, the credit card issuer would charge interest on the remaining $100.
- Deferred interest offer: After 12 months, you need to have the entire $1,000 paid off to avoid interest charges on the full balance. Even if you've paid off $900, you'd be charged interest retroactively going back to the purchase date.
Deferred interest is most common with store financing and store credit cards. On the other hand, 0% APR credit cards offer waived interest.
How can you be sure which type of offer a card has? It's all in the way the card issuer phrases the offer. If it says "0% intro APR for 12 months on purchases," that's waived interest. If it says "no interest if paid in full within 12 months," that's deferred interest. When in doubt, contact the card issuer to ask.
Should you get a 0% APR credit card?
You should get a 0% APR credit card if you have any big purchases to make that you can't pay in full. For example, if you need a car repair and you don't have enough in your savings to cover it, a 0% APR card is perfect for this situation. You could put the bill on your credit card, and then make payments on it.
Keep in mind it's best to be selective about how you use 0% APR credit cards. You can use them to finance just about any type of purchase that's within your credit limit, but you're still taking on debt when you do so. I suggest saving this type of card for those really important purchases and emergency expenses.
Also, if you were looking at 0% APR cards to lower your credit card interest rate as you pay off debt, a balance transfer credit card would be what you need. These aren't exactly the same as 0% APR credit cards. They offer a 0% APR on balance transfers instead of purchases, so you can use them to pay off credit card debt.
SEE TOP PICKS: Best Balance Transfer Credit Cards
How to use a 0% APR credit card
Here are a few tips that can help you save the most money while using a 0% APR credit card:
Estimate how long you need first.
To do this, take the cost of the purchase and divide it by the amount you plan to pay per month. For example, if you're planning to make a $2,000 purchase and pay $200 per month, you would need 10 months to pay that off.
This can help you choose the best credit card for your needs. In the example above, you'd know that you need a card with at least a 10-month 0% intro APR, so you could rule out cards that offer less.
Aim to have the entire balance paid off within the intro period
The credit card APR will go up quite a bit after your card's 0% intro period ends, even if it still has a good APR overall. Try to take full advantage of that intro APR by paying off your balance before the end of the intro period. If you do that, you can avoid interest charges entirely.
Don't miss payments
Even though there's no interest, you're still required to make at least minimum payments on your credit card. If you don't, the card issuer will likely charge a late fee. And if your payment is past due for too long, the card issuer could even cancel the 0% intro APR and charge you an expensive penalty APR.
Look at sign-up bonus offers
Some 0% APR credit cards also offer rewards, such as cash back and sign-up bonuses. For example, a card with a 0% intro APR might also offer a $200 bonus if you spend $500 in the first three months.
Perks like these are worth checking out when choosing a 0% APR card. If you get a card with a cash rewards bonus, you can put that bonus toward your card's balance as a statement credit. You can still finance new purchases with it, but you also get to save some money on your credit card balance courtesy of the sign-up bonus offer.
