Balance transfer compared to 0% per annum

Do you want to pay off your debt as quickly as possible or are you looking for an easy financing option? A zero interest card is one of the best weapons in a credit card arsenal if you use it wisely.

First of all, what is the difference between 0 percent per annum and balance transfers? We know it’s confusing, but it’s important to understand how each one works and which option is best for your financial situation.

The 0 percent APR offer can be a great way to pay off expensive purchases or manage high-interest debt, but be sure to understand the offer and its limitations and fees before taking advantage of it. Paying the balance before the end of the promotional period is the key to getting the most out of the offer.

0% per annum on balance transfers compared to purchases

For most unsecured credit cards, the carry-over balance is charged a current variable annual interest rate until you pay that balance in full plus interest. APR Zero Interest Offers offer zero interest on card balances, whether transferred or accumulated through new purchases, during the promotional period.

While a 0% APR on new purchases can be great if you’re planning on making a high-value purchase, a promotional APR on balance transfers can help you pay off your debt faster.

When purchasing a card with a zero interest rate, be sure to read the terms and conditions of the card carefully to find out if the zero interest rate applies to balance transfers, new purchases, or both.

How does 0% per annum work on balance transfers?

A balance transfer simply moves your existing balance from one card to another, usually between different issuers. Balance transfers can help manage debts from other cards, usually those with high interest rates, by transferring them to a card with 0 percent APR during the promotional period. The 0 percent initial annual return usually lasts from six to 18 months, although some cards offer it for up to 21 months. Keep in mind that balance transfers are not free. They often come with a balance transfer fee, conditions to maintain the initial annual interest rate, and limits on the amount that can be transferred.

How does the 0 percent APR on new purchases work?

Intro APR offers can also apply to new purchases made with a credit card and allow cardholders to pay no interest on that purchase for the duration of the offer, typically six to 18 months.

Keep in mind: Intro APR offers are different from deferred interest rate offers. When using deferred interest, interest accrues during the promotional period, but is suspended until the end of the initial period. If by that time the balance has not yet been repaid, all interest accrued since the date of purchase is written off. Compare this to APR’s 0% initial offer, which will not earn interest during the promotional period and will only charge interest on the current balance at the end of the initial period.

Should you get 0 percent APR on balance transfers?

Balance transfers are a great way to consolidate debt, especially if you have outstanding balances on multiple cards. Balance transfers can help you pay off your debt faster and save money on interest, but should be used with care. It is best if you have good financial behavior. If not, you might be tempted to accumulate another looming balance on your existing card.

Let’s look at an example. Let’s say you, the cardholder, have a $5,000 credit card balance with an annual interest rate of 19 percent. If you transfer this balance to a new card with 0% APR for 18 months and an initial balance transfer fee of 3% and pay $350 per month, you can pay off your entire balance in 15 months and save almost $520 US dollars on interest and commissions. . (Find out how much you could save using our Balance Transfer Calculator.)

Before applying for a balance transfer card, consider the following:

• Balance transfer cards often require good credit. Those with less than ideal credit scores may find it difficult to get a 0 percent APR offer. Consider some other debt consolidation methods as well.
• The balance transfer fee can be up to 5 percent per transfer. If your transferred balance is so large that your balance transfer fees are eating into the amount you’ll save on interest, think twice before signing up for a balance transfer card. Doing the math should help clarify your next step.
• A missed payment may void your benefits. Many balance transfer cards offer 0 percent APR for a period of time, provided you pay the minimum monthly amount. Otherwise, you may forfeit the zero interest rate and any entry fees, as well as subject to late fees and APR penalties.
• You may inadvertently void the grace period for purchases. Because the 0% annual rate on balance transfers makes it easy to transfer your balance, you may lose the grace period for any new purchases made with the card. Even when you use the card to buy a small amount of coffee, interest will accrue on the purchase from the first day.
• Some cards have transfer limits. Even if you decide that you are ready to transfer all your balances to the card, you may be denied this. If your assigned credit limit is too low, what will you do with the remaining debt? And, unfortunately, some cards have limits on the amount you can transfer, either depending on your credit score or the issuer’s policy – another hurdle you have to consider.

Should you receive 0 percent APR on new purchases?

When deciding whether to apply for the 0 percent APR offer for new purchases, it all comes down to your credit habits and whether it makes good financial sense. APR’s introductory zero-interest deals are ideal for those who typically pay their bills in full and on time each month. If you need a zero interest period to provide your family with extra money – in the event of sudden financial instability, such as a job loss or a medical emergency – such offers should give you extra time to calculate your new budget.

Zero interest on purchases is not for those who are trying to run away from their existing debt by opening new cards and spending on them. Your other debts will only continue to accumulate interest and haunt you.

Before you apply for a 0 percent APR card, be sure to read the offer, what it applies to and how you will pay that balance and make timely payments each month so you don’t lose it.

When buying and using a zero interest card, please consider the following tips:

• Know the length of your introductory period. If a card offers 0 percent APR on both purchases and balance transfers, it is not guaranteed that this will be within the same time period. Sometimes the interest-free period lasts longer for balance transfers than for purchases.
• Set a calendar reminder for the end of the advertising period. Be sure to set a repayment schedule that is aggressive enough to pay off the balance within the initial period to avoid accruing interest. Setting an end date reminder also ensures that you maximize your card with a 0% APR.
• Missed Payments Can Exclude Your Initial APR. As with balance transfer offers, your issuer can end the initial APR period immediately if you miss a payment. The zero APR offer doesn’t mean you don’t have to pay anything during the initial period – you still have to pay the monthly minimum.

How high balances can affect your credit score

While balance transfers and 0% APR offers can be good for your credit by helping you pay off your debt, there are a few more ways they can hurt your debt.

Having more affordable credit can be good, but if your balance of transfers or purchases takes up a large percentage of your lines of credit, your credit usage could go up. Since your credit utilization rate is 30 percent of your FICO score, it is very important to keep it low. Some recommend keeping the ratio around 30 percent, but in reality the lower the better.

If you diligently pay off the balance on your new card with a 0% APR or balance transfer while keeping other card balances low, your credit score will likely improve.

bottom line

The zero percent APR offer can be great if you understand the ins and outs of your card and can pay off your balance before the end of the promotional period.

Whether you choose to get a zero-interest card for balance transfers or purchases (or both), understanding how your card works and what benefits it offers can help you save on interest, pay off debt, and improve your credit.

CreditCards.com Team This article was created using automation technology and carefully edited and reviewed by our editorial team.