When you need to buy something, but you can't pay it all upfront, a 0% APR credit card can be a big help. This type of credit card offers an introductory 0% interest rate on purchases. Instead of getting charged interest from the beginning, you'll have time to pay down your balance without any extra costs.
That could save you a considerable amount of money on expenses you need to finance, such as a car repair, a new computer, or anything else you want to pay off over time. But to benefit the most from a 0% APR card, there are some things you should know before you apply.
1. You still need to pay the minimum
Like all credit cards, a 0% APR card will have a minimum payment amount. You're required to pay that by the due date. If you don't, the card issuer could charge you a late fee and possibly even cancel the zero-interest offer.
Although the minimum amount is all that's required, it's better to pay more if possible. This way, you can have the balance paid off before the introductory period ends.
2. The APR will go up after the introductory period
A 0% APR is an introductory offer, and how long it lasts depends on the card. Some of the best 0% APR credit cards don't charge interest for the first 12 months or longer.
Once that introductory period ends, the card's normal APR will apply going forward. That's why it's smart to pay as much as you can during the 0% APR period, not just the minimum. If you still have a large remaining balance, it will cost you.
3. You'll probably need good credit
Credit card companies will generally only approve you for a 0% APR card if you have a good credit score. Under the widely-used FICO system, good credit means a score of at least 670.
It's not impossible to get approved for this type of card with a lower credit score. Your credit score isn't the only factor that determines whether your application is successful. But good credit will help your chances. If you're not sure about your credit, there are free ways to get your credit score that you can use.
4. Not every type of transaction will have zero interest
0% APR credit cards offer zero interest on purchases. Any type of transaction that counts as a purchase will qualify for the introductory APR.
Some 0% APR cards also offer zero interest on balance transfers, but this isn't always the case. If you need a 0% APR on debt you transfer over, then you're better off checking out balance transfer credit cards.
A cash advance doesn't qualify for zero interest and will have its own separate (and usually higher) APR, as well as cash advance fees. The card issuer can also start charging interest on cash advances immediately. Considering the costs involved, cash advances are almost never a good idea.
5. A high balance can lower your credit score
Even when you're not getting charged interest on your credit card, its balance will affect your credit score. One of the factors that determines your score is your credit utilization ratio -- the ratio of your credit card balances to your credit limits. The conventional wisdom is that keeping your credit utilization below 30% is good for your credit.
Imagine you have a 0% APR card with a credit limit of $10,000, and you charge $7,500 in home repairs. That would put your credit utilization at 75% and would likely cause your credit score to drop. As you pay down the balance, your credit score would go back up.
6. You could save extra money with a sign-up bonus
A sign-up bonus is another type of introductory offer for new cardholders. If you complete the terms of the bonus, you'll earn extra rewards. For example, a credit card may offer $150 to new cardholders who spend $500 on purchases in the first three months, plus a 0% intro APR on purchases.
If you find a card with both those benefits, it saves you even more. You get money back from the sign-up bonus, and you avoid interest charges.
7. Zero interest can lead to overspending
One thing to be very careful about with a zero-interest offer is the temptation to spend more. It's easy to fall into this trap when you don't need to worry about interest charges. Instead of paying down your balance, you add to it.
Make sure you have a payment plan for any purchases you make with your 0% APR card. Do the math on how much you'll need to pay per month to have everything paid off within the introductory period. And don't add unnecessary purchases just because they'll start out interest free.
8. A 0% APR credit card isn't right for everyone
0% APR cards work best for consumers who need to finance one or more big purchases. If you always pay your credit card bill in full and don't have any purchases to pay off over time, then a 0% APR doesn't help you much. You wouldn't get charged credit card interest anyway.
In that case, it makes more sense to compare credit cards based on other features, such as the rewards and other benefits they offer.
Considering how long zero-interest periods can be, a 0% APR credit card can easily save you hundreds of dollars. Now that you know more about this type of credit card, you'll be able to maximize your savings.
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