The advantages and disadvantages of zero percent APR credit cards

With numerous credit card benefits and introductory offers available, you might be asking yourself, "Is 0% APR a good deal?"

That’s an excellent question. Like many financial products, 0% APR credit cards come with their own set of pros and cons.

Here’s what you should consider to determine if adding a 0% APR credit card to your wallet is a wise choice.

Advantages of 0% APR credit cards

A 0% APR credit card offers cardholders an introductory period—typically ranging from six to 21 months—during which no interest is charged on their balance. This timeframe can be incredibly beneficial if your aim is to reduce credit card debt. Once the introductory period concludes, cardholders will receive a new APR, which will vary based on the card's terms and the cardholder's credit profile.

Eliminate interest on large purchases

If you anticipate a significant purchase that you can’t pay off right away, a 0% APR credit card allows you extra time to settle the amount without accumulating interest.

Before making a large purchase with a 0% APR card, ensure you have a strategy to pay it off. Charging expenses to a 0% APR card might seem convenient initially, but if you're unable to pay off the amount before the introductory period ends, you'll begin to incur substantial interest charges.

Eliminate interest on an existing balance

If you have a balance on another credit card, you could transfer that amount to your 0% APR credit card. This allows you to pay down the balance without accumulating additional interest.

Boost your credit score

Reducing your debt can enhance your credit score by lowering your credit utilization ratio. Additionally, making timely payments on your card is the most crucial factor in calculating your FICO credit score.

Earn rewards

Certain no-interest credit cards come with additional rewards programs, like cash back or rewards points, leading to extra savings. This can include a welcome bonus and rewards based on every dollar spent.

For instance, the no-annual-fee Chase Freedom Unlimited® provides at least 1.5% cash back on all purchases, along with an attractive introductory APR period.

With the Chase Freedom Unlimited, your 0% introductory APR will last for 15 months on both purchases and balance transfers. After this period, a variable APR ranging from 19.99% to 28.74% will take effect. For more information, check out our full review of the Chase Freedom Unlimited.

Drawbacks of 0% APR credit cards

Naturally, a 0% APR credit card comes with its own set of disadvantages.

0% is not permanent

It's crucial to keep in mind that the introductory 0% APR period won't last indefinitely. If you haven't cleared your balance by the time it expires, interest will start accruing on that balance once the period ends.

Fees for balance transfers

Transferring a balance to your 0% APR credit card will incur a balance transfer fee, typically ranging from 3% to 5%. This fee is likely much less than the APR you currently pay, considering the average credit card APR exceeds 20%. Nonetheless, it's important to include this fee in your calculations if you're thinking about a balance transfer to eliminate your credit card debt.

Stringent terms and conditions

Make sure to thoroughly review your card's terms and conditions. Some cards may only offer the 0% APR for new purchases and may not include balance transfers. Additionally, many will terminate your 0% APR period if you miss a payment. Understanding the details of your offer is essential to avoid unexpected issues.

Confirm whether the card you're considering provides a genuine 0% introductory APR or a deferred interest arrangement. With deferred interest, your credit card still accumulates interest during the deferred period, and you will only owe that interest if you don't fully pay off the charge within a specified timeframe. Deferred interest is often associated with store cards.

Illusion of security

At TPG, we advise clearing all credit card balances in full each month. No amount of credit card rewards can counterbalance the interest you'll rack up from overspending. If the idea of a period without interest encourages you to spend more than you can afford to repay, a 0% APR credit card might be more detrimental than beneficial.

Is 0% APR a good deal?

The value of 0% APR depends on your financial objectives and spending habits. If you can fully pay off or significantly reduce your credit card balance during the 0% APR timeframe, obtaining a card with this offer can lead to substantial savings and help you avoid unnecessary interest costs.

If the absence of interest leads you to spend more than you can afford on your credit card, it will ultimately not be worth it.

Conclusion

A 0% APR credit card can be an excellent choice for anyone looking to pay off their credit card balance without incurring interest. However, it may not suit everyone. Before you apply, evaluate the card's terms and your repayment strategy to make sure you can take full advantage of the benefits of a 0% APR credit card.