What does 0% APR mean?

When it comes to credit cards, “0% APR” means there’s no annual percentage rate, or no interest. But rates that low are typically offered for a limited time known as the promotional period. When the promotional period ends, the interest rate goes up. But even with a higher rate, there are other ways to avoid paying interest.

What you’ll learn:

• With a 0% APR credit card, qualifying transactions don’t incur interest.

• Promotional APRs have to last at least six months.

• Missing a monthly payment or going over your credit limit could cause promotional offers to end early and trigger a penalty APR.

• Promotional APR offers are different from deferred-interest offers.

A 0% APR credit card is one that doesn’t charge interest on qualifying purchases and transfers for a fixed amount of time. The no-interest period is called a promotional period. If the rate is tied to a new cardholder offer, it might be called an introductory rate, or intro rate. 

By law, introductory or promotional periods have to last at least six months. But they may last longer, often between 12 and 21 months. When the promotional period is over, the card’s standard rate will go into effect and could be applied to the remaining balance.

A 0% APR doesn’t mean you don’t have to make a minimum payment every month. The Consumer Financial Protection Bureau (CFPB) says it’s important to pay the minimum by the due date each month. Plus, depending on your card agreement, missing a monthly payment or going over your credit limit could cause the promotional period to end early and trigger a higher penalty APR.

Once a 0% APR promotional period ends, the standard APR typically applies to any outstanding balance and new purchases.

These types of offers allow borrowers to access money or make purchases while avoiding interest for a set time. Promotional rates may not apply to all transactions. Some transactions, such as cash advances, may have higher APRs. 

Here are two common ways a credit card with 0% APR can work:

• Accessing a 0% balance transfer: A balance transfer lets you move credit card debt from one card issuer to another. If a balance transfer credit card offers a 0% APR, you may be able to consolidate your debt to pay it down faster, save money on interest and simplify your payments. But there still may be fees to transfer a balance.

• Planning big purchases: You might use a 0% APR card to pay for a major purchase like furniture or electronics. If you repay the balance before the introductory period ends, you could avoid paying interest altogether.

Promotional 0% APR offers aren’t the same as deferred-interest offers. Knowing the difference can help you avoid confusion and unexpected charges. Here’s how the CFPB compares the two: 

• Promotional rate offers: “You will start to pay interest on that remaining balance only from the date the promotional period ends.” 

• Deferred-interest offers: “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.”

The CFPB website has a broader comparison, including example scenarios and interest calculations.

Potential benefits of a 0% APR credit card include:

• Paying down debt faster: Transferring the balance of a higher-interest credit card to one with a 0% APR could help you direct more of your payments toward the principal. That means you might pay off the balance faster.

• Saving on interest: Instead of paying toward interest, you can invest your money in other goals, such as paying down debt or building an emergency fund.

• Paying for large purchases over time: You could use a 0% APR card to avoid interest charges on an expensive item.

According to the CFPB, credit card issuers typically offer their best rates to customers with the highest credit scores. When deciding whether you qualify for a 0% APR offer, lenders might consider your payment history, credit utilization ratio and recent credit applications.

Credit cards with 0% APR offer interest-free spending for a limited time. If you read the card’s terms and conditions, you’ll know more about what to expect during the promotional period and what happens when the standard APR kicks in.