The TL;DR of 0% APR

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Have you ever seen offers to take out a credit card or make a purchase with a 0% intro APR? What does this mean? How can a credit card charge no interest?

In this post, we’ll explain exactly what does 0 APR mean and what you should watch out for when going into them.


What Does 0% APR Mean?

A 0% annual percentage rate (APR) means that the credit card company won’t charge you interest on the balance you carry from one billing cycle to the next.

Compared to a 0% intro APR credit card, an unsecured card (often times called a “regular credit card”) works a bit differently. When you use an unsecured credit card, you can possibly be charged interest on the purchases you make. Any unpaid balance can be subject to a daily interest rate. This might cause the interest charges to compound as they build upon the card’s outstanding balance, plus any unpaid interest.


Will I Have a 0% APR Forever?

No. 0% APR periods generally last only 6 to 12 months for most major credit cards. Some store-branded credit cards may extend this period for as long as 60 months.

Stores and credit card issuers use 0% APR offers to make purchases easier and more manageable for customers. For instance, someone who wants to buy a new refrigerator for $2,000 can break it up over the next 12 months into $166.67 payments and not pay any interest. These offers can help customers as long as they make all their payments within the allotted time frame.


What Happens When the 0% APR Period is Over?

At the end of the 0% APR period, the interest rate will change based on the terms of the initial offer. Here are the two most common types of 0% APR offers:

Promotional 0% APR

If the credit card company offers a promotional 0% APR period, then your interest rate might simply adjust to match your credit score. From that point on, any balance that now carries forward will be calculated with this new interest rate.

Deferred Interest

If the 0% APR period was offered with deferred interest, then carrying a balance beyond the allowed time frame might become a problem. With deferred interest, the interest charges still accumulate in the background but might never become due if you can pay off the full balance before the APR period ends. However, if you leave even one dollar unpaid on your balance, then you might owe the full interest that you’ve collected during the 0% APR period.

Store-branded credit cards, for example, will use deferred interest to allow exceptionally long 0% APR periods. With one of these cards, you might make a purchase and have 36 months to pay it off.  However, these credit issuers will bank on you not paying off the full balance. If you can’t pay your balance in the allotted time, then the card issuer will charge you 36 months’ worth of accumulated interest.


A 0% APR Checklist

When taking up a 0% APR offer, make sure to do the following:

  • Don’t leave a balance – Pay off the entire balance at least one month before the 0% APR period ends.
  • Make your minimum monthly payments – Even though a 0% APR offer will not accumulate any interest, standard balance payments will still be due. Make sure to follow through on your payments or you may void the 0% APR terms.
  • Watch out for fees – Some card issuers may charge fees for the privilege of a 0% APR offer. Read the fine print before signing up.
  • 0% APR may not apply to everything – Not all services on the credit card such as cash advances may qualify for a 0% APR. Watch out for these exceptions and avoid those features which don’t apply.
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