If you’re getting ready to finance a large purchase, there are a number of options that can help, including personal loans, home equity loans, and home equity lines of credit.
But if you have the resources to pay back the loan amount in full within a few months, it’s best to use a credit card with a 0% annual percentage rate, which can save you a lot of the money you would otherwise spend . interest.
Keep reading to learn more about how 0% APR cards work and how you can use one to finance your next big purchase.
How 0% APR Cards Work
A 0% APR credit card is a credit card that does not require you to pay interest on your credit card balance for a specified period of time. This introductory phase typically lasts between six and 21 months, but once it ends, the interest rate returns to the standard rate, which is often variable, on the remaining balance and future purchases.
Keep in mind that these 0% interest cards vary in the benefits and features they offer, with some offering longer introductory periods and different benefits. Annual fees and balance transfer fees can also affect the amount you pay when it’s all said and done, so you’ll want to consider all of the above factors when choosing a card with a low APR.
0% APR Cards: Pros and Cons
With a 0% APR card you can save money on interest charges and lower your monthly credit card payments. Many people also use zero-interest balance transfer credit cards to consolidate debt. They allow you to pay off your debt faster because each payment goes directly to the principal without being charged interest.
Using any credit card responsibly, including cards with a 0% introductory APR, can help improve your credit score. Paying off debt reduces your credit utilization ratio, which, along with on-time payments, is vital to a healthy FICO credit score. Many 0% APR cards also offer rewards in the form of points or cash back, along with sign-up bonuses and limited-time incentives. These cards may also offer perks such as cell phone insurance, purchase protection, and extended warranties.
However, these types of credit cards have some disadvantages. Some 0% APR cards may charge a balance transfer fee, typically ranging from 2% to 5% of the amount transferred, when you transfer debt from other issuers. Additionally, applying for a new credit card may result in a temporary drop in your credit score due to a difficult inquiry, although this impact is generally minor and short-lived.
Finally, most 0% interest cards don’t offer the best rewards, so if you’re looking for valuable benefits and income rates, you’re better off elsewhere.
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When Should You Use a 0% APR Card?
Whether you want to lower the interest on your credit card or need short-term financing for a large purchase, a credit card with a 0% annual interest rate could be a good choice for you.
In fact, there are a number of scenarios where it can be more beneficial than taking out a short-term loan:
- Urgent home improvements: Let’s say you need a bathroom remodel or a washer and dryer replacement. A 0% APR credit card with an extended APR introductory period allows you to charge the purchase to the card and pay it off over several months without interest or fees.
- Setting up a new home office: If you want to transform an empty bedroom into a work-from-home workplace, you can buy what you need (a new desk, a second computer monitor, etc.) and work on making your new décor work over time. to pay off.
- Business start-up costs: Starting a business is rarely cheap, but several 0% APR credit cards for small businesses have extended introductory periods that can help you get your new venture off the ground without falling behind on major purchases.
Choosing the right 0% APR offer
For most people, the most important factor in selecting a 0% APR credit card is the length of the 0% interest period. These typically range from 15 to 21 months, but can vary from card to card.
You’ll also want to read the offer details. Some 0% introductory APR credit cards cover purchases, balance transfers, or both, and different timelines may apply for zero-interest purchases and balance transfers. For example, you receive 0% APR on purchases for 12 months and on balance transfers for 18 months.
You should always consider the additional benefits and rewards that a 0% APR credit card offers. Some offer cash back, points or other incentives, while others offer travel perks and benefits you can use on your next trip.
Finally, if earning rewards isn’t a priority, look for a card with a lower standard interest rate for when the 0% APR period ends, and no annual or balance transfer fees.
In short
It’s important to be careful when choosing (and using) a 0% APR credit card. If you don’t pay off your balance before the introductory period ends, you could be hit with unexpected fees, defeating the entire purpose of getting a low-interest card.
Be sure to research the options that best fit your repayment timeline and financial constraints. For example, if you don’t qualify for a 0% APR credit card, a personal loan may be a viable alternative as they often have more lenient eligibility requirements. Be careful not to pay an excessive APR.
However, if you think a low-interest card is the right choice, check out our list of the best 0% APR and low-interest credit cards.