By Frances Coppola | American Express Credit Intel Freelance Contributor
7 Min Read | September 22, 2020 in Cards
A credit card with a 0% intro APR offer makes it possible to borrow money at no cost, making it a great way to finance a purchase.
But depending on your financial circumstances, 0% intro APR credit cards may be well-suited for some financing needs and not-well-suited for others.
They can also become expensive if not used responsibly.
At one time or another, most people will encounter situations where they need to borrow money for a short period of time, from a week or a month to a year or two. For some situations, using a 0% intro APR credit card may be a better approach than alternatives like bank loans, home equity loans, or peer-to-peer loans. However, borrowing money from your credit card can raise a lot of questions.
This article explains the typical features of 0% intro APR credit cards and discusses how to use them effectively to meet certain short-term financing needs.
You can think of a 0% intro APR credit card as a standard credit card with an introductory annual percentage rate (APR) of zero – much lower than the current average U.S. credit card APR of about 15%. A large number of 0% intro APR credit cards are available, all with varying features and benefits. But they have some features in common:
Check the card’s “Schumer box” – the legally required table-format summary of terms in all credit agreements – to find the card’s standard APR, how long the 0% rate lasts, what it covers, and any fees and charges.
The 0% rate can also be subject to conditions. These might include:
If you break any of these conditions, the interest rate could automatically revert to the card’s standard APR.
It’s important to know that credit cards have multiple APRs, usually one for each type of transaction – for example, purchases, cash advances, and balance transfers. And a card’s 0% intro APR rarely applies to cash advances. Instead, when you take a cash advance from your credit card – typically from an ATM or a teller’s window – you’re usually charged an upfront fee and interest starts accruing immediately based on the card’s cash advance APR. Unlike with purchases, there is no interest-free grace period. This is why getting cash from your credit card is considered one of the most expensive ways to borrow money. In addition, most credit cards have a separate limit on cash advances that is lower than the card’s overall credit limit.
If you plan to make many purchases in a short period of time. Suppose you are furnishing a new home or apartment. You may be buying many things over a relatively short period of time, but not all at once. If you take out a bank loan, you’ll pay interest on the whole amount borrowed whether or not you have purchased anything yet. You could use a standard credit card with a typical interest-free grace period of one month, but that might not be enough time to make your purchases and clear your balance before interest charges kick in. So, using a 0% intro APR credit card could make sense. It could give you as much as two years to complete all your purchases and clear the balance without paying interest.
If you want to finance a large purchase. Suppose you want to go on the vacation of a lifetime and pay for it over 18 months. Using a 0% intro APR credit card could work out costing you less than taking out a bank loan, and unlike an equity loan it doesn’t put your home at risk. Check that the period for which the 0% interest rate applies is comfortably long enough for you to be able to pay off the balance. Also, when calculating the total cost of your holiday, take into account any fees and charges payable on the card.
When considering making a purchase with a 0% intro APR credit card, it’s worth comparing the cost of using the card against any finance offers available for that item, as this might ultimately be cheaper than the card after taking other fees and charges into account.
When choosing how to finance such purchases, cost is usually not the only consideration. Flexibility is a big advantage of using a 0% intro APR credit card instead of a short-term loan.
With a credit card, you can vary your monthly repayment amount, without penalty, as long as you make at least the monthly minimum payment. For more, read “How and When to Pay Your Credit Card Bill.” But keep in mind, if you pay only the minimum required, you may not pay off your balance within the 0% grace period.
Still, the ability to reduce your monthly payments and continue to pay off the balance after the 0% period expires is one aspect of borrowing with a credit card that is usually not available with other types of loans, like installment loans. At that point you’ll pay interest based on the card’s standard APR, but this can nevertheless be an effective way of navigating a temporary variation in your finances.
It’s generally not recommended to have an outstanding balance at the end of the 0% intro period, but if you do, you may be able to transfer it to another zero-interest credit card. However, card issuers won’t usually let you transfer to another 0% card issued by them, and repeated balance transfers can adversely affect your credit score.
There are at least three things to avoid when using your 0% intro APR credit card:
If you’re looking for an inexpensive way of borrowing money for one-off or short-term purchases, 0% intro APR credit cards may be the right answer. When used responsibly, they can cost you less in interest charges than other borrowing options, and their flexibility over repayments can help you manage your finances month-by-month. But as with all cards, be sure your 0% intro APR credit card meets your needs, you understand any fees and charges, and you have a plan for paying down the balance before the introductory period ends.