Seeing an offer for a no-interest credit card for the next year can be enticing, especially if you are planning on making some big-ticket purchases or transferring over a balance from another credit card. However, there are a few things you should know 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? In addition to not paying interest on new purchases, 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.
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 the six facts that you need to know 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, which is a 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, even by a single day, you could lose your introductory offer. To keep yourself from forgetting to pay, set up automatic payments for the minimum amount.
3. Prepare for the standard interest rate once your intro offer ends
Make sure you know that 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, and you don’t think you can pay off the balance before then, 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.
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, which still gives 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.
The bottom line
A zero-interest credit card can be a valuable item in your wallet. It could help if you have a large purchase that you can’t pay off right away or have a large amount of debt to manage. However, it’s essential to keep these six facts in mind while you weigh the pros and cons of opening a 0% APR credit card.
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