What Does 0% APR Mean?
Learn more about the benefits of 0% APR and how it works
Nobody wants to pay more than they have to, especially when it comes to credit card interest. And if you have a credit card with a 0% promotional APR, you may not have to.
But how exactly does a 0% promotional APR work? And what are the pros and cons? Read on to learn the answers to these questions and more.
How Does 0% APR Work?
A 0% APR means that you pay no interest on certain transactions during a certain period of time. When it comes to credit cards, 0% APR is often associated with the introductory rate you may get when you open a new account.
A 0% promotional APR may apply to a card’s purchase APR or balance transfer APR or both. It depends on the offer. For example, if your card offers a 0% promotional APR for both qualifying purchases and balance transfers, you won’t have to pay any interest on qualifying purchases or balance transfers during the promotional period.
What Happens When 0% APR Ends?
0% promotional APRs are for a limited time—they don’t last forever. Promotional APR periods must last at least six months. But they can be even longer.
Your standard APR will apply when the promotional APR period expires. And if you’re carrying a balance on the card, you’ll start to see the card’s standard rate applied to the balance.
0% Promotional APR vs. Deferred Interest
A 0% promotional APR is not the same as a deferred interest offer.
With a deferred interest offer—unlike a 0% promotional offer—interest accrues, but it’s deferred until a stated offer end date. That means that when a deferred interest offer ends, your standard interest rate will apply.
But your standard rate won’t apply to just the remaining balance. As the Consumer Financial Protection Bureau (CFPB) explains, “If you do not pay off the entire balance of the promotional purchase you’ve made on your card, then interest going back to the date of the purchase will be added on top of the remaining balance.”
So how can you tell the difference between a 0% promotional APR and a deferred interest promotion? As the CFPB explains, “Deferred interest offers use language like ‘No interest if paid in full within 12 months.’ The ‘if’ means you could end up paying more than you expected.”
Not meeting the payment terms of a deferred interest offer can make a purchase cost much more than it would if it were paid off during the promotional period. That’s because all of the interest will be applied back to the purchase date. So it’s important to understand how long your deferred interest period will last and to try to pay your balance in full before the period ends.
What Are the Pros and Cons of 0% APR?
Pros of 0% APR
- Pay no interest: If you meet the terms of the offer, you won’t be charged interest during the promotional period.
- Pay down debt faster: If you transfer a balance from a credit card with a higher interest rate to one with a 0% promotional APR, for example, you won’t be charged any interest during the promotional period. And that means your payments may result in the debt being paid off faster.
- Pay for large purchases over time: You can pay for big-ticket items over time—potentially without paying any interest at all—instead of paying the entire cost up front.
Cons of 0% APR
- 0% APR is only temporary: 0% APR only lasts for a limited time. Your standard rate will apply once the promotional period ends.
- 0% APR may not apply to everything: Some transactions, like cash advances, may still accrue interest during the promotional period.
- Fees: Just because there’s no interest doesn’t mean there are no fees related to an offer. Some cards might charge a balance transfer fee, for example.
- Penalty APR: You still have to make monthly minimum payments during the promotional period. If you make a late payment or miss a payment altogether, you might lose your 0% APR. Your card might even charge a penalty APR after a late or missed payment, which is likely much higher than the standard APR that kicks in after the promotional period. Be sure to know the terms and conditions of both your card and the offer.
Knowing the Ins and Outs of 0% APR
Credit card offers with 0% APR may catch your eye with their promises of no interest. But it’s still important to do some homework so you’ll know exactly what to expect during and after the promotional period.
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We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.