The annual percentage rate, or APR, on a credit card represents the cost you pay per year to borrow money on the account. So, when you open a credit card that features an introductory 0% APR on purchases or balance transfers (or both), it means you won’t pay interest on those types of transactions—at least for a limited time.
A 0% APR credit card could be a useful tool if you want to consolidate debt or save money when financing a large purchase. But it’s important to understand the pros and cons of 0% APR credit cards before you apply for a new account.
Here’s how these card offers work and how to choose the best 0% APR credit card for your situation.
How 0% APR credit cards work
Before you apply for a 0% APR credit card, take the time to read the fine print .Depending on the offer, the introductory interest rate may apply to either new purchases, balance transfers, or both. Additionally, you should understand how long the 0% APR on your new card will last before it reverts to the card’s standard variable APR. Each offer is unique, but it’s common for an introductory interest-free period on a new account to last between six to 21 months.
It’s also important to point out that the length of the interest-free period might be different for different types of transactions. A card might offer a longer 0% APR period for balance transfers, for example, than it offers for new purchases.
If you’re considering using a 0% APR credit card offer to transfer a balance, pay attention to any balance transfer fees the card issuer may charge as well. Balance transfer fees tend to range between 3% to 5% of the amount you’re transferring to the new card. So, you’ll want to do the math and make sure consolidating your debt with a balance transfer still makes good financial sense with the added fee.
Pros and cons of a 0% APR credit card
Before you open a 0% APR credit card, you should consider the potential benefits and drawbacks of this type of account. Here’s what you need to know.
Pros
- Save money on interest: You have the potential to save a lot of money on credit card interest with a 0% APR credit card, especially if you pay off your full balance before the interest-free period ends.
- Pay down credit card debt: Transferring high-interest debt to a credit card with a 0% introductory APR could also help you pay down your credit card debt faster. Yet it’s essential to avoid future overspending if you use this debt elimination strategy. Otherwise you risk facing financial and credit issues in the future.
- Reduce monthly payments: If you use a 0% APR credit card to consolidate high-interest debt, it could reduce the amount of your minimum monthly payment. While it’s typically better to make larger payments to your credit card issuer, reducing the size of your monthly payments could be helpful on a temporary basis if you’re experiencing financial hardship.
Cons
- A 0% APR comes with an expiration date: In most cases, the interest-free period will last between 12 and 21 months on a 0% APR credit card. Afterwards, the card’s regular (and often high) APR will apply. If you don’t have a plan to pay off the balance on the account before the intro APR ends, the interest you pay on any outstanding balance could be expensive.
- Rewards tend to be less impressive, if they are offered at all: Some 0% APR credit cards may feature modest rewards. But often these types of credit cards aren’t the best rewards credit cards on the market. Instead, the primary “reward” of opening a 0% APR credit card is typically the interest-free period it offers.
- Late payments could cost you: It’s never wise to pay your credit card bill after the due date. But if you make late payments on a credit card with a 0% APR offer, the card issuer might end your interest-free period early and start charging you the regular APR on your balance instead.
Will a 0% APR credit card hurt your credit score?
A 0% APR credit card has the potential to help or hurt your credit score. (The same is true of any other type of credit card.) Yet the impact that a credit card has on your credit score depends on the following two primary factors.
- Whether the account appears on your credit report (aka the actions of others).
- How you manage the account (aka your own actions).
Before a credit card can have any impact on your credit scores, the account must first show up on your credit reports with Equifax, TransUnion, and Experian. Most credit card issuers do report accounts to all three major credit bureaus. But some local banks or credit unions might report to just one or two credit reporting agencies instead.
If the account does show up on your credit report, a 0% APR credit card has the potential to help you build positive credit if you manage the account in a responsible way. Consistently paying on time and keeping your balance-to-limit ratio low could work in your favor over time where your credit scores are concerned.
On the other hand, the same account could trigger a drop in your credit score if you make late payments on the account. And even if you always pay on time, other credit card mistakes might backfire and hurt your credit scores like maxing out your account.
Will a 0% APR credit card hurt your credit score?
A 0% APR credit card has the potential to help or hurt your credit score. (The same is true of any other type of credit card.) Yet the impact that a credit card has on your credit score depends on the following two primary factors.
- Whether the account appears on your credit report (aka the actions of others).
- How you manage the account (aka your own actions).
Before a credit card can have any impact on your credit scores, the account must first show up on your credit reports with Equifax, TransUnion, and Experian. Most credit card issuers do report accounts to all three major credit bureaus. But some local banks or credit unions might report to just one or two credit reporting agencies instead.
If the account does show up on your credit report, a 0% APR credit card has the potential to help you build positive credit if you manage the account in a responsible way. Consistently paying on time and keeping your balance-to-limit ratio low could work in your favor over time where your credit scores are concerned.
On the other hand, the same account could trigger a drop in your credit score if you make late payments on the account. And even if you always pay on time, other credit card mistakes might backfire and hurt your credit scores like maxing out your account.
Please note that card details are accurate as of the publish date, but are subject to change at any time at the discretion of the issuer. Please contact the card issuer to verify rates, fees, and benefits before applying.
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