0% APR Credit Cards: Are They For Real?

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One of the Holy Grails of the credit card world is the 0% APR credit card.

Can you borrow money without paying interest? In most cases, the answer is no. Interest is the price you pay when you borrow. After all, the lender wants to make money, and to offset some of the risk involved in turning money over to you and trusting that you’ll repay it.

The 0% APR credit card is something a little different, though. It proves that you can borrow without paying interest — at least for a limited period of time.

0% APR Offers are Promotional

When you see a 0% APR credit card, you should realize that it is a promotional offer. The credit card is using it to draw new customers. This isn’t a bad thing, but it means that you need to know when the promotional period will end.

Look at the promotional period. One of the best credit cards is the Citi Simplicity card, which offers 18 months on purchases and on balance transfers. Other cards right now range from offering 12 to 14 months at the 0% level. The new Discover it card is one that offers 14 months at 0%.

One of the reasons that these credit cards are so desirable is due to the fact that you can use them for balance transfers. If you have a high balance on another credit card, you can move that balance to the 0% APR card, and pay no interest. This allows you to super-charge your efforts to pay down your debt. However, because the 0% rate is promotion, it helps to have a plan for your balance transferso you don’t get caught with the new rate.

As soon as the promotional period ends, you begin paying the regular interest rate, and that can be rather high.

Other Things You Should Know about 0% APR Credit Cards

While these credit cards can be great financial tools, it’s important to consider some of the other points about them. Some common items to be aware of include:

  • Balance transfer fee: You might not have to pay an interest rate on your balance transfer, but chances are that you will pay a fee. The balance transfer fee is usually between 3% and 5% of the amount you transfer. This can still be a good deal if your interest savings will offset the fee.
  • Capitalized interest: With some cards, particularly store-branded cards that offer 0% on certain purchases, the interest you would have paid might be capitalized at the end of the promo period. So, if you don’t pay off the card within that time, you still end up having all the interest you would have paid added to your balance.
  • Purchase only rate: Sometimes, your 0% APR credit card will only apply to purchases. So, you won’t get the 0% rate on balance transfers. And sometimes the deal is only valid for balance transfers, and not for purchases. Make sure you are clear on what, exactly, is covered in the 0% rate.

When used as part of your overall plan, a 0% APR card can be a great way to get ahead. However, you really do need to have an idea of how you will use it, whether you want to make a big purchase and pay it off before the promo period ends, or whether you want to reduce your debt faster.

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