Credit Cards with No Interest Rate: How They Work

Editorial Note:

You may have heard that credit cards with no interest rate are great cards to have. But what makes them so great? Provided that you can meet all the credit card’s terms and conditions, you won’t pay interest during an introductory period. According to the CARD Act of 2009, the 0% APR offer must be applied to the account for at least 6 months. With some cards, the promotional period can be as long as 21 months.

During this time you must participate in good faith. This means you must make payments on time, and you must make at least the minimum payment, among other things. Once the promotional period is over, the regular, non-promotional APR applies to your balance and future purchases.

There are two main types of offers with no interest rates. You may have 0% APR on new purchases only, or 0% APR on balance transfers only. Although it is rare, it is possible to have a card with both.

Credit Cards with No Interest Rate on New Purchases

If your card offers 0% APR on new purchases, no interest will apply to purchases made during the promotional period. Unless specified otherwise, interest will be applied to balance transfers and cash advances. You will still be responsible for other fees as described in your credit card agreement. Once the introductory period ends purchases made will be subject to the non-promotional interest rate. This 0% APR offer can be revoked if you break the terms and conditions of your credit card agreement.

Your payments will be handled differently with this card. If you pay only the minimum, the money will be applied to the balance with the lowest rate. Any extra funds paid over the minimum are applied to the balance with the highest interest rate. This would most likely be your balance transfer and cash advances unless you have no debt from these categories.

Some credit card issuers offer deferred interest credit cards. These are not 0% APR credit cards. The main difference between them is also of the most significant consequence. A deferred interest credit card generates interest over the promotional period. This interest is then added to your bill once the introductory period has ended. A 0% APR card charges no interest at all during the same period. Therefore, there are no surprises when the promotional period has ended.

0 APR on Purchases

Credit Cards with No Interest Rate on Balance Transfers

A credit card with 0% APR on balance transfers is different from one with 0% APR on new charges. 0% APR on balance transfers means debt transferred to the new card will not be subject to interest charges. This card’s offer is only applicable for a given introductory period, like the 0% APR purchase card. During the promotional period, interest will still apply to credit card advances and new purchases. At the end of the promotional time, a regular nonzero APR will apply to all remaining debt.

While you don’t pay interest on the debt transferred, you may have to pay a balance transfer fee. This charge is equal to 3%-5% of the total amount transferred. Careful consideration should be made when selecting a balance transfer card. Make sure this expense does not eliminate any savings you would have had from lowering your interest rate.

Aside from the balance transfer fee, many of the same credit card rules apply to both cards. You still have to follow the credit card agreement, and pay your bill on time.

Where to Find Interest Rates – Schumer Box

It’s easy to verify if a card has a 0% interest rate promotion. Under the terms and conditions, look for the section that shows the interest rates and interest charges. This is called the Schumer Box. The first section of the Schumer Box explains the interest rate and charges of a card. It also gives details of what the APR will be for purchases, balance transfers, and cash advances.

Schumer Box Credit Card Example

Schumer Box Credit Card Example

Pay Down Your Debt with No Interest Rate Cards

Whatever your financial strategy, credit cards with no interest rate are excellent tools to use when necessary. They will lower your monthly payments by eliminating interest charges. When applied correctly this will help you pay down your debt faster. Just remember to choose the promotional period that allows you to pay off your debt for before the period expires.

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