What does 0% APR mean?
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BLUEPRINT
Updated 10:59 a.m. UTC Nov. 14, 2023
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When you open a credit card with a 0% APR, it means you can borrow interest-free money from the issuing bank for a limited period of time. However, like any promotional offer, there are rules that apply. A big one is that these are introductory offers that typically last from six to 21 months.
Most 0% intro APR offers apply to either new purchases or balance transfers (where you move debt from one credit card to another). In some cases, you might be fortunate enough to get a 0% APR offer that applies to both the purchase APR and balance transfer APR on your account.
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What is APR?
APR on a credit card stands for “annual percentage rate”. It’s a term referring to the interest rate you’ll pay on your credit card debt when you revolve a balance from one billing cycle to the next.
It can be a smart move to find a credit card with a good APR (aka one that’s below average). However, credit cards are a unique type of financing product. If you follow sound credit card practices and consistently pay off your statement balance each month, you can avoid paying interest on most credit cards thanks to the grace period, regardless of the APR on your account.
How 0% APR works
A 0% APR credit card offer means paying no interest on either new purchases, balance transfers or both for a fixed period of time. Every credit card offer is different. But it’s common for 0% APR offers to last between six to 21 months. Sometimes, a credit card might offer a 0% intro APR on both purchases and balance transfers, but for differing lengths of time.
If you open a new credit card to take advantage of a 0% APR offer, it’s important to have a clear understanding of how the promotion works. With 0% APR balance transfers, for example, you’ll typically have to pay a balance transfer fee (often 3% to 5%) that will add to your overall costs.
There might also be a deadline by which you must complete your balance transfer request after you open the account to receive the promotional APR offer, such as within the first four months.
Beware that when your 0% intro APR period ends, any remaining balance on your credit card will incur interest at the regular APR, which could be quite high. For this reason, it’s crucial to make a repayment plan so you can pay off the full balance before the regular interest rate kicks in.
Looking for a 0% APR? See the best no interest credit cards
What happens when the 0% intro APR period ends?
When the 0% promotional rate on your account ends, the standard APR on your account will apply to new purchases and existing balances. If you have a remaining balance from a balance transfer, the balance transfer APR will apply when the 0% APR ends. You can check the Schumer box in your credit card statement or credit card agreement for more information about the APRs on your account.
It’s important to note a distinction here between 0% intro APR credit cards and those offering deferred interest. You might encounter deferred interest offers on store cards, and while they can seem superficially similar to 0% APR cards, there’s a crucial difference.
With a 0% intro APR offer, you only accrue interest on whatever balance remains when your intro period ends. But with deferred interest, if you don’t pay in full within the promotional period, you’ll owe interest on the entire purchase amount from the date you made the purchase.
Details to keep in mind with 0% APR
A 0% APR credit card offer could help you save money in the form of (temporary) interest-free financing on a big purchase. It can also help consolidate debt if you’re carrying a balance on multiple cards and combine them with a balance transfer. But before you apply for this type of credit card offer, it’s important to understand certain details:
1. The 0% APR won’t apply to all balances
Depending on the details of the offer, the 0% APR might apply to new purchases, balance transfers or both. However, cash advances are almost always excluded from 0% APR promotional deals.
2. Promotional APRs may expire at different times
As much as you might like your promotional interest rate to last forever, it will come to an end at some point in the not-so-distant future. By law, introductory interest rates must last for at least six months. Some 0% APR promos may last up to 21 months.
Note that if you have a 0% APR offer on both balance transfers and new purchases, the discounted interest rate on the different balances might expire at different times. For example, it’s possible for the 0% intro APR deal to apply to your balance transfer APR for longer than it applies to your purchase APR, or vice versa.
3. Large balances could hurt your credit score
Revolving a large balance on a credit card could drive up your credit utilization rate. Even if you’re not paying interest thanks to a promotional APR offer and you make every payment on time, a high credit utilization rate can have a negative impact on your credit score.
Using a 0% APR to finance a large purchase is likely to affect your credit score more than using a 0% offer for a balance transfer. If you’re opening a new balance transfer credit card to consolidate existing credit card debt, the new credit limit will likely decrease your overall credit utilization ratio (provided you don’t close your old credit cards or charge up new balances on paid-off accounts).
4. You’ll pay interest on remaining balances
When your promotional interest rate expires, as they all eventually do, it’s important to aim for a zero balance on your account. Otherwise, any remaining balance on your credit card will begin to incur interest charges at the standard APR on your account.
The average APR on credit card accounts assessing interest was over 20% in the first quarter of 2023, according to the Federal Reserve. Therefore, it’s best to pay your credit cards off in full every billing cycle if you don’t have access to a 0% APR promotional rate to avoid high-cost interest charges.
5. The card issuer could revoke your offer
Depending on the terms of your credit card agreement, your credit card issuer might be able to cancel the 0% APR on your account under certain conditions. If you fall behind on your payments, for example, your credit card company might be able to charge you a late fee and impose the penalty APR on your account. Late payments can also stay on your credit report for up to seven years and have the potential to damage your credit score.
How to get a 0% APR credit card
If you’re interested in getting a 0% APR credit card, here are some simple steps you can take:
- Review your credit. Credit card companies will check your credit report and score from at least one of the major credit bureaus (Equifax, TransUnion, or Experian) when you apply for a new credit card — 0% APR offer or otherwise. Therefore, it’s helpful to check your own credit and know where it stands before you start filling out credit card applications.
- Research offers. Once you understand the condition of your credit, you can research offers that seem like a good fit for your credit profile. Many card issuers require applicants to have a good credit score or better to be eligible for 0% APR offers. But if you’re still working to build credit, and you happen to be in college, you might be able to find student credit cards with more lenient approval criteria.
- Apply. After you find a credit card that seems right for you, you may be ready to move forward with the application. Some card issuers might even allow you to see if you’re preapproved for a credit card before you fill out the official card application. The preapproval process can help you avoid extra hard credit inquiries that might damage your credit score.
How to maximize your 0% APR offer
A 0% APR has the potential to save you money on financing costs or, in the case of a balance transfer, to help you pay off debt faster. But it’s important to manage a promotional offer wisely to get the most out of it. To help you maximize your interest-free offer, here are a couple tips:
- Make a plan. Your 0% APR will come with an expiration date. So, it’s wise to create a repayment plan to pay off the debt before the interest-free period ends. Imagine you finance a $6,000 purchase the first month you open your card and the 0% APR lasts for 12 months. You’d want to pay at least $500 per month to pay off the debt before the intro rate expires to avoid paying interest on the debt when the standard APR kicks in.
- Avoid overspending. You shouldn’t spend more on a 0% APR credit card than you can afford to repay promptly. If you’re worried the promotional interest rate might tempt you to overspend your monthly budget, this type of offer might not be a good fit for you.
Credit scoring models, like FICO and VantageScore, don’t consider the interest rates you pay on your credit cards, loans or any other types of financing. Therefore, a 0% APR credit card won’t boost your credit score simply by virtue of having a 0% APR offer. But if you use a 0% APR offer to consolidate existing credit card debt with a balance transfer, it might have a positive impact on your credit score by reducing your overall utilization.
Each credit card issuer has different criteria that applicants must satisfy when applying for a new account. In general, you need a good credit score or better to qualify for a credit card with a 0% introductory offer. Typically, that means a FICO Score of 670 or higher.
It’s important to shop around and compare offers if you’re interested in a 0% APR credit card. There’s no such thing as the “perfect” 0% APR card, but you can find the best 0% credit card offer for you. Depending on your needs, the best 0% APR cards may have a combination of a long promotional period, a low balance transfer fee, a sign-up bonus or the opportunity to earn rewards on your purchases.
Also, if shopping around for a balance transfer card, know that you cannot transfer balances between cards from the same issuer. For example, if you’re currently carrying debt on a Discover credit card, the new card you apply for should be from an issuer other than Discover. Or, if you have debt on a Citi card you wish to transfer, you’d want to select a balance transfer card from an issuer other than Citi.
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