What does 0% APR mean?

Annual percentage rate, or APR, is a metric that shows the actual cost of borrowing money through a credit card, loan or another line of credit. In the case of mortgages and loans, for example, the APR combines the loan interest rate with any additional loan-processing fees (such as the origination fee associated with a mortgage) to give you a complete and accurate cost of borrowing.

If the borrowed money has a 0 percent APR, no interest will be charged on that money for a fixed period of time.

Zero interest credit cards, or 0 percent intro APR credit cards, allow cardholders to make payments with no interest on purchases, balance transfers or both for a set period of time. Since credit cards don’t have loan-processing fees, a credit card APR is generally synonymous with the credit card interest rate. And since APRs are calculated based on a daily periodic rate and multiplied by 360 or 365, your credit card APR is a complete look at how much it will cost you to borrow money for an entire year.

But is a 0 percent APR credit card right for you? In this guide, we’ll help you decide by analyzing how to make the most out of a 0 percent APR period.

How does a 0% intro APR work?

You’ve probably seen the tempting 0 percent introductory APR offers that credit card companies use to attract new cardholders. But what does a 0 percent APR offer really mean?

In most cases, a 0 percent APR is a special promotional interest rate. The benefit of credit cards offering a 0 percent intro APR is that you can borrow money for a limited amount of time — usually between 12 and 21 months — without accruing any interest on your qualifying credit card balance.

During this period, you will still be required to make your minimum payment each billing cycle, but you won’t be charged interest on any eligible balance you carry until the introductory period ends. If you pay off your balance before the intro APR ends, you avoid interest entirely, which allows you to pay off debt more quickly, catch up on your savings and more.

Most cards offer a grace period during which you won’t pay interest on your purchases as long as you pay your credit card statement balance in full each billing cycle. In this case, the APR doesn’t really matter. But if you make the minimum payment or don’t pay off your entire statement balance, you’ll be charged interest on whatever balance you carry into the next billing cycle. That is unless you’re in the midst of a 0 percent APR period.

The two most common 0 percent APR offers are for new purchases and balance transfers. Credit cards will often offer both to new cardholders.

0% intro APR on balance transfers

You can use a balance transfer card to pay off a different debt balance (auto loan, personal loan, etc), but not all issuers allow it. It rarely makes sense to use a balance transfer card if the loan’s interest rate is lower than the credit card and you might not be able to pay off the whole balance in time.

The best balance transfer credit cards are generally available to those with good or excellent credit. They feature a 0 percent intro APR offer to help you save money on interest and often give you a year (or more) to pay off your debt. After the 0 percent APR period ends, any remaining balance on the card will start accruing interest.

By transferring a balance from a high-interest credit card to a card with a 0 percent intro APR, you can ensure your entire monthly payment amount goes toward your original balance and not to added interest — at least while the intro APR lasts. You’ll most likely have to pay a balance transfer fee, which typically ranges from 3 percent to 5 percent of the balance transfer amount.

0% intro APR on new purchases

Some issuers offer a 0 percent APR on new purchases for a limited amount of time as an incentive to sign up for a credit card. For example, some of the best zero-interest APR cards come with a 0 percent APR on new purchases for the first 15 months. During that time, you will only have to make payments on the principal balance on the card (the actual amount you charged) — not on additional interest.

This is a great way to fund a large purchase or pay for an unexpected medical expense, as long as you plan to pay off your debt before the 0 percent APR offer expires.

0% intro APR vs. deferred interest

That said, there’s an important distinction to be aware of between a 0 percent intro APR and a deferred interest offer. With a 0 percent intro APR, there are no interest charges for the introductory period — ever. The regular interest rate only kicks in on whatever outstanding balance remains at the end of the intro APR period; there’s no secret clock running in the background adding up charges.

Deferred interest, on the other hand, delays interest payments until the end of the introductory period. If you pay off the entire balance by the end of the period, you won’t owe any of the interest. However, if you owe even a penny on the balance after the introductory period expires, you may owe up to 100 percent of the interest costs accrued during the deferred interest period. Plus, interest will continue to accrue on your unpaid balance as you work to pay it off.

As such, deferred interest offers are rarely a good idea unless you’re certain you will be able to pay off all of the balance before the deferred interest period expires (and you double-check there are no errant pennies owed).

0% APR mistakes to avoid

When you take advantage of a 0 percent APR offer, certain mistakes could ruin the sweet deal you’ve scored and send you back to paying the regular interest rate before the promo period expires. Avoid these slip-ups on your 0 percent APR credit card:

• Missing a payment
• Making a late payment
• Waiting too long to transfer a balance
• Overspending and coming up short on the minimum payment

When you miss a payment or make a late payment on a 0 percent APR credit card, the terms of the offer likely stipulate that the issuer could nullify your promotional offer. This also happens if you don’t make at least your minimum payment each billing cycle. If you’re using the 0 APR card to transfer a balance, you’ll want to make any balance transfers before the deadline to take advantage of the offer, typically 30 to 120 days after your card is issued. If you transfer the balance after that point, you’ll pay the regular interest rate.

What happens when a 0% intro APR ends?

When your 0 percent APR offer ends, your account converts to the terms outlined in your card agreement. You won’t owe any back interest — as long as there’s no deferred interest associated with your card’s offer — but you’ll begin accruing interest charges on the outstanding balance from that day forward.

Before choosing a 0 percent APR credit card or financing a purchase, it’s essential to understand the rates and fees that apply after the introductory period expires. This is particularly critical if you don’t anticipate being able to pay off the money you borrowed before the end of the promotional period.

That said, when used responsibly, a zero-interest credit card has few drawbacks. Understanding the pros and cons of 0 percent APR credit cards can help you decide if they’re a good choice for you.

Tips for maximizing zero-interest credit cards

A zero-interest credit card can be an excellent addition to your financial toolkit. However, understanding what a 0 percent APR card is and knowing how to maximize one are different challenges. Here are some tips for making the most of your zero-interest credit card:

• Pay off your balance before the promotional period ends. The best way to maximize your 0 percent APR card is to pay off your balance before the introductory period ends. That way, you’ll be able to access the credit you need without paying a penny of interest on it. It’s a win-win.
• Avoid adding new debt to a balance transfer. It might be tempting to add new debt to the card on top of your balance transfer amount and start carrying a balance, but this might keep you in debt longer. Plus, if you don’t pay off the balance before the intro period ends, you’ll pay interest on the balance and destroy what you were trying to do in the first place.
• Use your 0 percent APR period wisely. Have a plan to take full advantage of your zero-interest period. Use the time to get ahead on payments and maximize your savings. Otherwise, you’re just pushing off the money you owe and not saving much.
• Avoid the temptation to overspend. Don’t use your zero-interest period as an excuse to buy more or spend money that you can’t pay back. Just because your credit card payments are lower right now doesn’t mean they will always be. Remember, once the introductory period ends, your balance accrues interest at the regular APR.

The bottom line

When you use a 0 percent APR offer to your advantage, you can fund a large purchase, catch up on old debt or borrow money without paying interest. When used properly, 0 percent APR offers can provide convenience, relief and an avenue to get ahead on your finances.

Of course, this benefit is not a free pass to spend frivolously or buy things that you can’t afford. If you don’t pay off your purchases or transferred balances before your 0 percent APR offer ends, you could find yourself right back where you started.