How do 0% APR credit cards work?

If you’ve ever gotten a solicitation in the mail offering you a credit card with 0 percent interest, it might have seemed too good to be true.

While a 0 percent APR credit card can be a fantastic deal that allows you to spend money — and often transfer a credit card balance — without paying any interest in the short term, it’s not always the best financial move for everyone.

What does 0% intro APR mean?

A credit card with 0 percent APR means that a new cardholder does not have to pay any interest on purchases or balance transfers during a preset introductory term, which is usually somewhere between six and 18 months. If you still have a balance on the card after the introductory rate expires, you’ll have to pay interest on it.

Since the interest rates can be substantial once they kick in, it’s important you have a plan to pay off any balance on your 0 percent APR card before the introductory period expires.

What is the difference between a purchase APR and a balance transfer APR?

Most 0 percent APR cards offer a promotional rate for balance transfers and new purchases, although some cards offer a 0 percent APR for one and not the other.

A purchase APR applies only to the new purchases you make. A balance transfer APR applies only to balances you transfer from another account. Card issuers offer these promotional rates to entice you to open an account and move your balances (and, therefore, your business) to them as a new customer, so you typically can’t make transfers between cards from the same issuer.

A balance transfer APR is a promotional rate that is typically lower than the purchase APR — and that’s the whole point. It’s designed to entice you to transfer high-interest debt to a new credit card with a lower APR (or a period of no interest), so you can pay it down without worrying about getting hit with more interest.

Why get a 0% intro APR card?

In some circumstances, using a 0 percent APR card might be a smart financial move. They include:

• For big purchases: If you don’t have the cash to pay for a large purchase all at once, putting it on a 0 percent interest card can give you some breathing room to pay it without incurring interest.
• For emergency expenses: For unexpected expenses like a car repair or a large medical bill, you might consider using a 0 percent interest card if you don’t have an emergency fund (or don’t want to tap into it).
• For a balance transfer: If you have an existing credit card or other high-interest debt — not an uncommon scenario amid historically high credit card APRs — transferring that balance to a 0 percent interest credit card can help you pay it off.

When will you get charged interest?

You’ll owe interest on the card whenever your introductory rate ends, if you still have a balance. The card issuer will let you know the length of the introductory period when you sign up for the card, but if you forget, you can always call to double-check.

Some issuers automatically end the introductory rate if you’re late on a monthly payment during the intro period, so be sure you know the terms of your card. One way to avoid an early end to the intro rate is to set up automatic payments for at least the minimum amount you owe each month. That way, you’ll never accidentally forget to make a payment on time, and you can always make larger, additional payments as needed to further pay down the balance.

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

Once the APR on your card has ended, you’ll want to use it the same way you’d use a traditional credit card, with the goal of spending only what you can pay off at the end of each month. Do that and you won’t have to deal with the high interest rates you were trying to avoid in the first place.

Once the introductory offer ends, you may also decide not to use the card anymore. You’ll want to consider any potential rewards as well as the card’s annual fee (if it has one) in determining whether you want to keep it in your wallet.

One note: If the card does not have an annual fee and your credit history length is still limited, it may make sense to keep it open even if you’re not using it in order to avoid any potential short-term damage to your credit score by closing it. When you close a credit card, that account’s credit limit will no longer be factored into your credit utilization ratio, which makes up 30 percent of your FICO score.

Depending on what balances you carry on other credit cards you own, closing your 0 percent APR card could raise your credit utilization ratio and lower your score. To calculate your credit utilization ratio, use CreditCards.com’s credit utilization calculator.

Best cards for 0% intro APR

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

Wells Fargo Reflect Card

One of the cards with the longest intro periods on the market, Wells Fargo Reflect® Card offers 21 months from account opening of 0 percent APR on new purchases and qualifying balance transfers made within the first 120 days. After the introductory rate expires, the regular interest rate is variable and between 17.99 percent and 29.99 percent (balance transfer fee of 5%, minimum $5). There is no annual fee.

Citi Diamond Preferred Card

The Citi® Diamond Preferred® Card also provides zero interest on both new purchases and balance transfers, though its balance transfer offer is longer. While its 0 percent intro APR on purchases lasts for 12 months, its 0 percent intro APR on balance transfers lasts for 21 months. However, the balance transfer must be performed within four months of account opening.

The balance transfer fee is either $5 or 5 percent of the balance transfer, whichever is greater. After the introductory rate expires, the regular interest rate is 17.74 percent to 28.49 percent variable, depending on your creditworthiness. There is no annual fee, but the card does not offer rewards.

Chase Freedom Unlimited

The Chase Freedom Unlimited® offers a 0 percent introductory rate on purchases and balance transfers for the first 15 months. After the introductory period ends, the regular interest rate is 19.74 percent to 28.49 percent variable. There is no annual fee, but you’ll have to pay a balance transfer fee of $5 or 3 percent of the amount of each transfer, whichever is greater, during the first 60 days.

The Chase Freedom Unlimited also offers bonus cash back in a few categories, including 5 percent back on travel purchased through Chase Ultimate Rewards and 3 percent on dining and drugstore purchases (1.5 percent on other purchases).

Bottom line

Credit cards with 0 percent intro APRs can be an excellent financial tool in some situations and save you from paying interest on large purchases or balance transfers. Still, it’s 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.