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About 0% APR
When you apply for any new credit card, there are many promotional offers that the credit card company may provide at the time.
You can use these offers to your benefit whether it is acquiring a new credit card or doing a balance transfer.
One of the most common offers provided by credit card companies on new credit card purchases is 0% APR. In this post, we will understand what is 0% APR and how it works.
What Does 0% APR Mean?
Before we dig deep into 0% APR, let us first understand what an APR is. APR stands for the annual percentage rate that is charged by the credit card company on the credit cards as an interest rate for utilizing the money.
The average APR that is charged on a credit card in the country is between sixteen to seventeen percent and could go up to twenty-five percent if you have low credit.
A 0% APR is an offer provided by credit card companies to the borrowers taking out the new credit card or balance transfers where they don’t have to pay any interest for the specified period.
This simply means that the borrower can borrow money for free till the offer period ends.
How Does 0% APR Works?
A lot of credit card companies will give an introductory offer where your APR would be zero percent as an incentive for the borrower to get the card.
This introductory offer could be for any new purchases that you do on the card, balance transfer, or both.
New Purchase:
Most of the time when you get a new card anything that you purchase after you have received the card is with a 0% interest rate for that introductory period.
The introductory period could be anywhere between ten and twenty months. The exact offer period depends on the card that you receive from the credit card company.
Let’s say you buy a new washing machine using this new card and the introductory period is for twelve months.
This means that you can keep this balance for twelve months and you don’t have to pay any interest for the same.
Once the introductory period expires the credit card company will charge you with the interest rate which could be anywhere between sixteen to seventeen percent on an average and up to twenty-five percent if you have low credit.
If you are paying off the entire balance before the introductory period expires, you would not be charged any interest for using the money within the intro period.
Balance Transfer:
If you already have a credit card balance where you are paying interest and you get a new credit card with zero percent interest rate offers, you can pay off the balance on the first card by doing a balance transfer on the new card and saving interest amount.
The balance transfer credit cards with zero percent APR would also have an introductory period which could be anywhere between 10 to 20 months depending on the type of credit card you have been offered by the credit card company.
Let’s say that you have an existing card with a balance of $5,000 where you are paying 17% interest.
You get a new balance transfer credit card with a 0% APR offer for 12 months. You can transfer the $5,000 from your existing credit card to the new credit card and save the 17% that you would have to pay on your existing card for up to 12 months.
If you keep the balance for more than the introductory period on the new card, the credit card company would start charging you the standard interest rate on the balance.
However, if you pay off the balance before the offer expires, you don’t have to pay any interest.
What Are The Pros and Cons of Zero Percent APR?
Pros:
- Zero interest is paid for the money borrowed.
- Pay your debts faster.
- Get time to pay for your large purchases with no interest rate charged.
Cons:
- The offer is only for a limited period.
- Not everyone qualifies for this offer.
- No benefit if the balance is not paid within the offer period.
Conclusion
You can avail of the 0% APR offer for new purchases or balance transfers from your existing credit cards, however, you need to be responsible to pay off your balance before the offer period ends to get the benefit of the 0 percent APR.
It is one of the best ways to borrow free money, however, while doing that you need to ensure that you have the repayment strategy so that you don’t overspend and reap the benefits of this type of offer.
