How Does 0% Interest Work on Credit Cards?

Posted on March 1, 2022

IMAGE: Woman holding phone and credit card in kitchenThe Annual Percentage Rate (APR) on credit cards is the same as the interest rate. Many times, these terms are used interchangeably. Credit cards with a 0% APR introductory offer don’t charge any interest for the duration of the 0% interest period. These offers can apply to purchases, balance transfers, or both. The 0% offers give you a useful tool for financing large purchases or paying down other higher interest debt. But keep in mind, when the 0% introductory period is over, interest will both apply to new purchases and accumulate on all balances that are still outstanding at that time.

0% APR on New Purchases

This interest rate applies to items you buy with your card. Zero-percent offers mean that purchases made within the promotional period accumulate 0% interest and convert to your regular interest rate on remaining balances when the promotional period ends. This may be a good option if you plan to make a large purchase and pay it off over time. If you pay your purchases off before the promotion period, your purchases will be interest-free.

0% APR on Balance Transfers

This offer involves moving debt from one credit card (or other loans) to another, usually to get a lower interest rate. If you are looking to reduce high-interest credit card debt, this may be a good option. Moving high-interest debt to a lower interest rate card can save you hundreds of dollars in interest or allow you to pay the balance off faster.

For either new purchase or balance transfer offers to be beneficial, you need to have a plan. Know when the promotional period ends and set a budget to pay the balance in full, or have the balance significantly paid down before the promotion ends.

0% APR or Deferred Interest – Know the Difference

Some credit card offers may look like 0% APR but are actually “deferred interest.” In a true 0% APR offer, you won’t be charged interest on purchases or balances during the promotional period. Any purchases made or balances you revolve beyond the promo period will be subject to regular interest rate charges.

A deferred-interest offer, such as 12 months same-as-cash, is structured so that you are not paying interest during the 12 months, but it is still being calculated. Suppose you have not paid the balance in full by the end of 12 months. In that case, you will be charged all the interest from the entire promo period and interest will continue to accrue until you have paid it off. During your deferred interest period, set up payment reminders or auto payments, so you make at least the minimum payment by the due date. Nearly all deferred interest rate offers become void if you miss a payment or a payment is declined, so be careful.

The value of a true 0% APR offer depends on your habits and your specific needs. If you’re planning a large purchase and feel you could pay it off during the promotional period, the offer could be very beneficial. Likewise, 0% on balance transfers offer may significantly benefit a plan to pay down high-interest debt.

Read the fine print of any 0% APR offer, know your spending habits, create a plan, and feel confident in determining whether it’s the right choice for you. Texell has credit cards that offer a 0% APR on purchases and balance transfers for the first six months. Click here to apply for a Texell credit card today.

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