What is an APR intro and how does it work?

Some credit cards come with extremely low or even non-existent annual interest rates for a limited period of time. While the initial rates will eventually expire and you’ll be back to paying regular APRs, you can get ahead financially when you get the right score – and use it wisely.

Here’s how 0% APR works and what you should know before applying.

What is the starting rate on a credit card?

The initial interest rate is an ultra-low term interest rate. The initial rate can be as low as a few percentage points or even 0%, and the best APR initial offers go beyond 12 months, with some cards offering up to 21 months interest-free. These offers are usually offered for newly issued credit cards, so they will most likely not be available for an account you already have (although issuers may send you special offers for existing cards from time to time).

Depending on the credit card, you may have an initial APR for purchases, balance transfers, or both. In any case, as long as the initial rate is in effect, you will be charged little or no interest on the balance. At the end of the trial period, you will be charged the regular rate.

How is the introductory period going?

The introductory period starts from the moment the account is created. This means that if it comes with 0% APR for 12 months and the credit card was issued to you on January 1st, you have until December 31st of that year to pay off the debt or make payments without adding any financial fees. .

However, this does not mean that the initial rate is guaranteed for the advertised months. As a cardholder, you are required to handle the account in accordance with the rules set by the issuer. This means sending at least the minimum payments by the due date. If you do not, the transaction will be voided and the issuer will charge you the highest interest rate.

Benefits of the introductory period 0%

There are quite a few benefits associated with 0% introductory periods, as listed below:

Saving

The most obvious advantage of the initial interest rate, especially when it is 0%, is the money you save on interest expenses.

For example, if you transfer a $6,000 balance from a 22% APR credit card to a 0% APR card with a 12-month initial period (plus an estimated 3% balance transfer fee of $180), the total amount saved you interest will amount to be 760 dollars. Subtract the $180 commission and your savings is $580.

You can also strategically use ultra-low balance transfer deals per year to get out of debt.

Use cash flow

You can open a new credit card with 0% APR and charge for an interest free purchase and save money by paying off that purchase during the introductory period.

Let’s say you withdrew $6,000 from a 0% APR card with a 12-month introductory period and paid $500 monthly. It won’t cost you a dime of fees if you pay them within a year. But if your card has 22% APR and you send the same payments, the interest will be $839 and it will take you 14 months to be clean.

In fact, using your credit card issuer’s interest-free funds can help you increase your personal cash flow, which is exactly what Julie Gordon, founder of Inspiring Kitchen, did to renovate her kitchen.

“I was offered 0% for 12 months,” Gordon said. “Basically, it saved me from having to pull all that money out of savings right away. I had a year to make a payment for whatever amount I wanted, knowing that in 12 months I would pay the balance so there would be no interest.”

Cashback and rewards

An additional benefit is the receipt of an introductory price list, which also has a registration bonus. Some issuers will refund you a certain amount of cash after you spend a fixed amount within a few months of opening an account.

Other cards offer signup bonuses in the form of points or miles. So not only will you be able to use these cards to transfer balances or purchases that you can pay for over time without adding interest, you will also profit from the process.

What to Look for Before Applying for the 0% APR Introductory Offer

There are many factors to consider before applying for a credit card with a starting rate – see below for what to consider:

• Your credit score: Great offers require good to excellent credit scores, which typically range from 670 to 850. Find out what you have before you apply. You don’t want to try to get a card only to get rejected because a tough request can shave some points off your credit score.
• Offer duration: The longer you have to pay off the debt, whether it’s a balance transfer or purchases, the better. Timings vary greatly, and even the same card may offer different periods for purchases and balance transfers.
• Credit card type: The card should fit your long-term needs and lifestyle. One that allows you to earn miles or points is best for people who love to travel, while a cashback card is attractive for general use.
• Regular pa: Eventually the initial credit card interest rate will rise to the regular rate, so keep that in mind. Good APRs are available to people who have established themselves as low-risk cardholders. To be seen as such, make payments on time and keep your balance low.
• Other fees: Don’t limit yourself to short-term interest rate benefits, as other fees may be added. If the account has an annual fee, the benefits must outweigh this cost. The balance transfer fee is usually between 3% and 5%, so find the lowest you can get. Traveling out of the country? Look for a card with no foreign transaction fees.

The difference between the initial period of 0% and deferred interest

Deferred interest rate credit cards bear some resemblance to introductory 0% interest credit cards, but they are not as profitable. Interest is not added to the balance during the promotional deferred interest period, but you must pay the balance in full before the deal expires.

If you don’t, and you’re left with a debt (even a penny), all the interest you’ve accrued will be added to your balance. So if you charge $5,000 and have $1,000 left, interest will be calculated on the original $5,000 and added to what you owe.

Conversely, with a credit card with a starting rate, you will only earn interest on any balance you have left after the end of the promotional period. This means that if you charge $5,000 and still owe $1,000 when the initial rate ends, interest will only apply to that debt. The $4,000 you already paid off was an interest free loan.

Clearly, credit cards with deferred interest rates are riskier than those that offer introductory interest rates. But in both cases, it is important to manage your financial affairs in order to pay off your debts before interest begins.

bottom line

According to credit card expert Jason Steele, zero interest introductory APR cards are ideal for one-time large purchases, not when you can’t afford to cover your expenses. “They’re great for things like paying for your kids’ summer camp, car repairs, or a big medical bill,” Steele said.

Before charging or adding a balance to an introductory price list, find out how you will pay off your debt over a set period of time. You don’t want to be stuck in high interest debt.

You may need to work out some of the numbers in your budget for this to happen, but with a well-designed repayment plan, you can do it. In short, just because you can distribute high debt until the last minute before the true rate kicks in doesn’t mean you should, especially if you seem to be overstretched.

Erica Sandberg is a renowned personal finance professional and author of Waiting for Money: The Essential Financial Plan for New and Growing Families. Her articles and insights have been featured in The Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSN Money and Dow Jones MarketWatch. An active television and radio commentator, Sandberg is a credit and money management expert at KRON-TV in San Francisco, and a frequent guest on Forbes Video Network, Fox Business News, Bloomberg TV and all Bay Area networks. Prior to starting her own reporting and advisory business, she worked at the San Francisco Consumer Credit Counseling Service, where she advised individuals, conducted educational seminars, and managed media relations. Sandberg is a member of the Society of American Business Editors and Writers and a member of the advisory committee for Project Money.