How Do 0% APR Credit Card Offers Work?

These promotions give you several months — often a year or more — to pay down your balance without interest.

Melissa LambarenaOctober 20, 2020
How Do 0% APR Credit Card Offers Work?
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A credit card with a 0% APR offer works like any other credit card, with one key difference: It doesn't charge any interest for the duration of the 0% period. That makes it an effective tool for financing a large purchase or paying down high-interest debt transferred to the card from somewhere else.

What does '0% APR' mean on a credit card?

The annual percentage rate, or APR, on your credit card is just another term for the interest rate. With a typical credit card, you are charged interest if you revolve a balance — meaning you don't pay your bill in full and you carry over some debt to the next month. If you pay your balance in full each month, you won't be charged interest.

When a card has a 0% APR period in effect, no interest will be charged even if you revolve a balance. Once that period ends, you'll start paying the card's ongoing interest rate on any debt you carry month to month.

The 0% APR period usually applies to purchases, to balance transfers or to both. When applying for a card that advertises a 0% period, make sure the promotion aligns with your plans for the card.

Nerd tip: Usually, the 0% period does not apply to cash advances. Those typically start accruing interest right away.

What is a purchase APR?

The purchase APR is the interest rate that applies to things you buy with the card. A 0% APR for purchases gives you the ability to buy something with your card and then pay it off over time without interest. Card issuers offer 0% periods for purchases as a way to attract new customers and get them used to using the card.

What is a balance transfer APR?

A balance transfer is the process of moving debt from one place to another, usually to get a lower interest rate. The balance transfer APR on a credit card is the rate charged on such debt. Moving debt from a credit card with an APR well over 10% to a card with a 0% period for transfers can save you hundreds of dollars in interest, money that you can apply to the debt itself to pay it off faster.

Nerd tip: Most cards charge a fee for balance transfers — usually 3% to 5% of the amount transferred. A card may also limit how much debt you can transfer. And you typically can't transfer debt between cards from the same issuer.

How do 0% credit card offers work?

Promotional 0% APR periods, when they're offered, are usually limited to new card accounts. Sometimes, though, an issuer will offer you a 0% period for a card you're already carrying, in an attempt to get you using the card more often.

To qualify for a 0% offer, you'll typically need good credit or better (generally defined as a score of at least 690). Zero-percent offers are pretty common on cash-back credit cards as well as on cards specifically marketed as balance-transfer or low-interest options. They're less common on travel rewards or airline credit cards. Some cards offer 0% periods of 20 months or more, but periods of six to 12 months are more typical.

When a 0% period is in effect, interest won't be charged as long as you pay at least your minimum amount due by the due date every month (late payments can cause your 0% period to be canceled). At the end of the period, the interest rate resets to the ongoing APR, and you'll be charged that rate on any balance you carry.

Be careful when using a card that has a 0% period for balance transfers but not a matching 0% period for purchases. When you move a balance to a card set up like that and then pay it down over time, you're revolving a balance. That means any purchases you put on the card will start gathering interest charges immediately.

0% APR vs. 'deferred interest'

With a true 0% offer, you won't have to pay interest on balances you carry during the promotional period. That’s not always the case with so-called deferred interest arrangements, which have marketing language that sounds similar to 0% APR. Retailers might advertise “special financing” for a purchase or “no interest if paid in full” over a designated time frame. But these are different from 0% APR offers in a critical aspect.

In a deferred interest promotion, you might not be paying interest, but interest charges are still being calculated in the background. If you pay your bill in full before the promotional period ends, those charges are waived, and you pay nothing in interest. But if you have any balance leftover — even pennies — you’ll be charged interest for the entire amount of the transaction, retroactive to the purchase date. That could get really expensive.

Using a 0% APR offer wisely

There are big advantages to a 0% APR credit card offer. It allows you to make a large purchase interest-free or pay off debt more quickly. But those advantages dissipate if you don't pay down your balance and the regular interest rate kicks in.

When you put purchases or transfers on a 0% card, have a plan for erasing as much of that debt as possible within the promotional period. Map out how much you plan to pay off each month, and set reminders for the promotion's expiration date. Don't rely on the issuer to tell you it's ending, because they typically don't do so.

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