Is 0% Really Zero Percent?
A credit card that offers you 0% APR? How wonderful! Why, it’s almost too good to be true. Well, wait a minute. What if it is too good to be true?
Do You Qualify?
Naturally, the 0% offer is not as simple as it sounds. In the first place, not everyone qualifies for these offers. They are often only granted to people based on specific criteria such as high credit scores, low current balances, and a good payment history.
The Teaser Rate
Unfortunately, most zero-percent interest rates only last for a specified period of time. This may be as short as six months or as long as the lifetime of a transferred balance. If your zero-percent rate only lasts for a certain period of time, you need to figure out how much you will actually benefit from that low rate. If you have transferred a balance, then how long it will take you to pay off that balance? If you won’t be able to pay off the entire balance before the rate expires, than how much money will you really be saving? Take a long hard look at what your APR will be after the zero-rate teaser period ends. In the long run, this will be the rate you have to live with.
The Fees
If your wonderful 0% rate is for a balance transfer, beware of cards that charge a fee on that transferred balance. These fees are usually a percentage of the balance, and minimums can range from $10 to maximums of $75 or even more. Factor this cost in against your expected savings. The deal may not turn out to be as good as it seems. Late fees can be another nasty surprise hidden inside a zero-percent package. Not only will you be charged a fee for a late payment, but a provider might raise your interest rate after you have inadvertently made a single late payment. Your rate could go from zero to the card’s regular APR after the first late payment. A second late payment could cause the rate to further increase an even higher. Be aware that just one late payment could destroy the entire deal. And don’t forget that if the card charges an annual fee, this is another factor that eats into the overall savings.
New Purchases
If you are lucky enough to have a 0% offer that covers your new purchases for the teaser period, enjoy. But keep in mind that any balance left on your card after the initial 0% period expires will then be charged the card’s regular APR. Be careful not to build up a large balance while enjoying that fun free finance period. Unfortunately, many zero-percent rates only apply to transfer balances. These credit cards will charge you the regular APR on any new purchases you make from the beginning. Even worse, any payments you make to the credit card during this time will first be applied to the principal which has the lowest interest rate. This means that you must pay off the entire transferred balance before your payments will be applied to your new charges. This could lead to paying far more in finance charges than you originally counted on.
Making 0% Work For You
Even when you are being offered a 0% initial rate, make sure you choose a card that has a low APR after the teaser rate expires. Always be prepared to pay your bills on time every month if you’re going to take advantage of applying for these credit cards. If you are paying off a balance transfer on the new card, you may want to use another card with a low APR for any new purchases in order to keep from paying a higher APR.
The bottom line is that zero-percent offers and transfer programs can benefit you, but you need to be aware of all the fine print. Plan ahead before you even apply for your new credit card. Can you make the monthly payments on time, avoid new purchases on the card if they will be charged a higher APR, and be alert to hidden fees? If so, a 0% credit card really can offer you zero percent savings.