What does 0% APR mean?

While paying interest charges is one of the biggest downsides to using a credit card, it’s not inevitable.

One way to avoid incurring interest charges is to pay your balance in full each and every billing cycle. Another option is to sign up for a card that offers a 0 percent APR for a limited period of time.

Since 0 percent APR deals are promotional in nature and don’t last forever, it’s important to understand what “zero interest” really means and what you can expect if you’re approved for this type of card.

What is 0% APR?

Zero percent APR simply means that no interest is assessed on a credit card balance, whether the balance comes from purchases or was transferred from another credit card. This rate is temporary and is typically offered to new cardholders, though some issuers occasionally provide their existing customers with 0 percent APR periods on cards they already own.

Most 0 percent APR cards come with a promotional period that typically lasts between 12 and 21 months. After the promotional period ends, your interest rate will revert to the regular variable APR. That APR will vary depending on the card and your creditworthiness, but there’s a good chance it will be high, given the average credit card APR is nearly 19 percent.

Note that balance transfer fees may apply when you use a 0 percent APR card. Most cards charge between 3 percent and 5 percent of the balance transfer amount, so be sure to read the fine print carefully.

How do 0% APR credit cards work?

When you obtain a 0 percent APR card, you won’t be charged interest on your credit card’s balance as long as you pay it off completely before the promotional period ends.

However, after that promotional period is over, you’ll pay interest on any remaining balance until you’ve paid off the card. To take advantage of a 0 percent APR credit card, you’ll need a plan for paying off your balance before the promotional period ends. If you have a plan in place, a 0 percent APR credit card can be a smart way to save money on your debt.

Pros and cons of 0% APR

Pros

• You’ll pay zero interest on purchases for a set period of time. This can save you money if you’re planning on making a large purchase or paying off a high-interest balance.
• You can lower high-interest balances. If your credit isn’t the best and you have balances on other high-interest cards, you could transfer them to a 0 percent APR credit card.

Cons

• The regular APR rate may be high once the introductory period is over. If you don’t pay off your card’s balance during the 0 percent APR period, you’ll begin to incur interest charges. And with the Fed’s recent effort to tamp down inflation with a series of jumbo rate hikes, credit card APRs are as high as they’ve ever been.
• You may still have to pay a balance transfer fee. Most cards that offer balance transfers charge a fee to do so. That could cut into the money you’re saving by using a 0 percent APR card.
• Your credit score could be negatively affected. Opening a new credit card can temporarily hurt your credit score via a hard inquiry on your credit report and a lower average age of accounts. These effects are temporary, however.
• You may be tempted to overspend. Since you won’t have to pay any interest during the 0 percent APR period, you may be tempted to spend more than you can afford to pay off at the end of the period.

Deferred interest vs. 0% APR

Deferred interest offers, typically seen on retail store credit cards, closely resemble 0 percent introductory APR offers, but there is a key difference.

With a deferred interest offer, if you do not pay the entire balance before the end of the promotional period, you will be charged interest from the date of the purchase, including the original purchase amount.

Be careful if you’re considering a 0 percent APR deal from a retailer with its own credit card. You could find yourself with a shockingly high interest charge if the promotional period ends and you still have a balance, even if it’s small.

How to choose a 0% APR credit card

Take these steps as you shop around for the right 0 percent APR card:

• Find out how long the 0 percent period lasts: In most cases, the introductory offer on purchases will be anywhere from 12 months to 18 months, but some cards may offer up to 21 months.
• Take into account the consequences of late payments: If you miss a credit card payment, your issuer will likely begin charging interest on your balance, prematurely ending the promotional period, and hit you with a late fee. And if your payment is more than 30 days late, it’ll damage your credit score.
• Compare rewards: There are a handful of balance transfer credit cards that don’t offer rewards. However, some popular rewards cards offer a 0 percent introductory APR for purchases and balance transfers in addition to points or cash back.
• Check the fees: Review card details for balance transfer fees and other charges such as an annual fee or foreign transaction fees.
• Consider other benefits: Get to know the card’s other perks, including sign-up bonuses, statement credits and travel and shopping protections.

Bottom line

A 0 percent APR credit card offers a promotional period during which you will not be charged interest on your credit card balance. This can be a great way to save money on interest if you have a plan to pay off a balance within a set time frame.

Remember that “0 percent APR” doesn’t mean you’ll never be charged interest. But you can avoid it by paying your balance off before the regular APR kicks in and by paying your subsequent monthly balances in full by the due date.