Do You Need a 0 Interest Credit Card?

In its simplest form, a 0 interest credit card is one in which you aren’t charged any interest on purchases, provided that you understand—and can abide by—certain conditions. Zero interest credit cards:

• Offer 0 interest for a limited time only.
• Typically offer it for only one of two possible purposes.
• Demand the discipline and wherewithal to pay off the balance by the end of the 0 interest period—or you may face penalties in addition to interest.

First, all of these cards offer 0 interest only for a limited time. The Credit Card Accountability Responsibility and Disclosure Act—yes, the CARD Act—of 2009¹ requires that you have at least six months, but card issuers competing for your business may offer you between 12 and 21 months.

After that period expires, interest charges, as defined in your credit card agreement, will apply. Still, if you pay off your credit card balance during the 0 interest window, you are, in effect, borrowing money for free.

Second, most of these cards are designed for only one of two purposes.

• Purchases. Some apply the 0% APR strictly to purchases made with the card. These cards can be invaluable if you’re planning a major purchase (such as a washing machine, stove, or laptop) or face an unexpected expense (such as a major car repair). Rather than having to come up with the total amount all at once, you can pay for it in installments over time without spending more than if you paid on the spot in cash.
• Balance transfers. Suppose that you have a card with a $2,000 balance. Some portion of your monthly payment goes toward the principal, but the remainder is interest. When you transfer that balance to a 0 interest credit card, 100% of your monthly payment goes to the principal, helping you get out of debt faster.

Few cards apply the 0% APR to both purchases and balance transfers. So, if you use the card for something other than its primary intent (if you make a purchase with a card intended for balance transfers, for example) you will be charged interest on that transaction. If you want to use one card for both purposes, you may have to shop very carefully. And keep in mind that you will also be charged interest (and typically higher interest than for either purchases or balance transfers) if you use the card for a cash advance.²

Whichever card you choose, you won’t gain the benefit of having a 0 interest credit card without discipline. You’ll want to resist the temptation to buy more than you can afford just because you know you won’t have to pay interest.

You’ll also need the discipline to pay at least your minimum monthly payment on time, and to pay off the full balance during the 0 interest period. You will pay interest on any balance that remains when your interest-free ride ends. Plus, many card agreements permit the issuer to end the 0 interest period early if you make a late payment, miss a payment, or exceed your credit limit.³

If the 0 interest period ends because you violated the terms of your agreement, you may have to pay penalty interest rates that can be as high as 29.99%.⁴ So it’s wise to read the fine print!

If you’re comfortable with these conditions and want to apply for a 0 interest credit card, keep in mind that they’re not all the same. Here are some things to look for in the fine print.

• What is the annual fee (if any) to keep the card?
• How long is the introductory 0 interest period? 
• What is the APR after the introductory 0 interest period?
• What are the fees and rules for balance transfers? Most cards charge a fee (typically 3% to 5%) for moving an existing balance to the new card.⁵
• Also, some cards limit the time you have in which to transfer a balance (often 60 to 90 days), after which the option is gone.
• Be prepared for the possibility that you won’t know your balance transfer limit until after your application is approved.⁶

Last, know whether you’re applying for a genuine 0 interest credit card or its cousin, the deferred interest card. Both cards charge 0 interest during the introductory period. But with a deferred interest card, if you don’t resolve the full balance before the introductory period ends you’ll owe interest on the full introductory period, not just on the remaining balance.⁷

Most of this information is readily available in the Schumer box, which is the legally required table-format summary of terms in credit agreements.