How do 0% APR credit cards work?

If you’ve ever received a zero interest credit card offer in the mail, it might sound too good to be true.

While a 0% APR credit card can be a fantastic deal that allows you to spend money – and frequently transfer credit card balances – without paying any interest in the short term, it’s not always the best financial move.

What does 0% introductory annual mean?

A 0% APR credit card means that the new cardholder does not have to pay any interest on purchases and/or balance transfers for a set initial period, which is usually between six and 18 months. If you still have a card balance after the introductory rate expires, you will have to pay interest on it.

Because interest rates can be significant once they kick in, it’s important that you have a plan to pay off any balance on your card from 0% APR before the introductory period ends.

Why get a Zero Interest APR Starter Card?

In some cases, using a 0% APR card can be a smart financial move. They include:

• For large purchases: If you don’t have the cash to pay for a large purchase right away, putting it on a zero-interest card can give you a breather to pay it without interest.
• For emergency expenses: For unexpected expenses, such as car repairs or a large medical bill, you may consider using a zero-interest card if you don’t have an emergency fund (or don’t want to use one).
• To transfer balance: If you have a valid credit card or other high-interest debt, transferring that balance to a zero-interest credit card can give you time to pay it off without charging interest.

When will you receive accrued interest?

You will owe card interest whenever your initial rate runs out. The card issuer will tell you the length of the trial period when you sign up for the card, but if you forget, you can always call to double-check.

Some issuers will automatically stop the introductory rate if you delay your monthly payment during this period, so make sure you know your card’s terms and conditions. One way to avoid ending your initial bet early is to set up automatic payments for at least the minimum amount you owe each month. This way, you never accidentally forget to make a payment on time, and you can always make larger payments as needed to pay off the balance.

How to use your card when the 0% APR period ends

Once your card’s APR runs out, you’ll want to use it just like you would a traditional credit card, with the goal of spending only what you can pay off at the end of each month. Do this and you won’t have to deal with the high interest rates you tried to avoid in the first place.

After the introductory offer ends, you can also decide not to use the card again. You’ll want to consider any potential rewards, as well as the card’s annual fee (if any), to decide if you want to keep it in your wallet.

One note: if the card doesn’t have an annual fee, it may make sense to leave it open even if you’re not using it to avoid any potential short-term damage to your credit history by closing it. When you close a credit card, that account’s credit limit will no longer count towards your credit utilization rate, which is 30% of your FICO score.

Depending on what balances you have on other credit cards you hold, closing the card at 0% APR can increase your credit utilization rate and lower your score. To calculate your credit utilization rate, use Creditcards.com’s credit utilization calculator.

Best cards for 0% introductory APR

The best 0% APR starter card will depend on several factors, including which card you qualify for, credit limit required, rewards or privileges, and the cost of the fees. Some cards to consider include:

Discover® Cash Back

The initial rate of 0% is valid for 15 months on new purchases and balance transfers. The balance transfer fee is 3% on each transfer during the introductory period and 5% for transfers made thereafter. After the initial rate expires, the regular interest rate changes and ranges from 12.24% to 23.24%, depending on your loan and the base rate. There is no annual fee.

Discover it Cash Back also offers 5% bonus cashback on selected categories every quarter, up to $1,500 on cumulative spending every quarter, and then 1% (need to activate category). All other purchases earn 1%.

Citi® Diamond Preferred® Card

For new purchases, the initial rate of 0% is valid for 12 months after the account is opened. Balance transfers made within four months of account opening will carry a 0% interest rate for 21 months from the date of the first transfer. The balance transfer fee is $5 or 5% of the balance transfer amount, whichever is greater. After the initial rate expires, the regular interest rate is between 14.49% and 24.49% depending on your creditworthiness. There is no annual fee, but the card does not offer rewards.

The pursuit of unlimited freedom

This card offers a starting rate of 0% on purchases and balance transfers for the first 15 months. After the end of the introductory period, the usual interest rate is between 15.24% and 23.99%. There is no annual fee, but you will have to pay a balance transfer fee of $5 or 3% of each transfer, whichever is greater.

Chase Freedom Unlimited also offers cashback bonuses in several categories, including 5% cashback on trips purchased through Chase Ultimate Rewards and 3% cashback on restaurant and pharmacy purchases (1.5% cashback on other purchases).

bottom line

Zero interest credit cards can be a great financial tool in some situations and save you from paying interest on large purchases or balance transfers. However, it is important to understand how they work and have a plan to pay off any balance during the introductory period in order to maximize your savings.

Beth Braverman is a freelance journalist who writes about personal finance, careers, and parenting. She loves to travel, cook and cash out her hard-earned credit cards.