Is 0 apr credit cards right for you or not?

Are you searching for  0 apr credit cards? A large number of card companies offer credit cards with 0 apr or credit cards with low apr these days. Unfortunately, not everybody understands what such cards actually offer. In this article, I will try to explain in a simple language the features of 0 apr credit cards so that you can know whether this type of credit card is right for you. The fact that you receive an offer for credit cards with 0 apr does not mean that you should go for it.



 What is apr on a credit card?

For the benefits of people who are relatively new to credit card, I will like to take you back a bit to the basics by explaining what apr on a credit card is all about. APR is an acronym for Annual Percentage Rate. Annual Percentage Rate is the interest rate you pay on your credit card balance. The rate is usually expressed as a yearly rate. Regardless of the apr, it is possible to hold credit card without paying interest. This can be achieved by ensuring that you don’t carry any balance on your card. It is when you have unpaid balance on your card at the end of the billing cycle that APR becomes applicable. So, if your main objective for searching for 0 apr credit cards is to avoid paying interest on your card, you might be approaching it in a wrong way. If you hold 0 apr credit cards; that does not mean you will not pay interest. 0 apr credit cards mean that you will not pay interest on the balance transferred to the card or on balance resulting from purchases that you make within a specific period of time. It is not a life time offer. Once the period which may be just six month is over, you will start paying interest on the card balance. In most cases, the apr is usually higher than the regular apr. A lot of people are unaware of this. They are just being carried away by the 0 apr. That is why I will be shedding more lights on credit cards with 0 apr below.

Read Also: Credit Cards Application and How to Choose the Right One

Why 0 apr credit cards?

If you still have to pay interest on 0 apr credit cards, the question you may want to ask is, “why the offer?”  0 apr credit cards are nothing but a marketing scheme developed by credit card companies in order to win more customers. When it started, it was being offered by few credit card companies. But now, almost all credit card companies offer 0 apr credit cards as part of their products. Nevertheless, it has some peculiar features which can be useful for certain situations.

Usefulness of 0 apr credit cards

  • Debts transfer: If you have debts on two or three cards on which you are currently paying high interest, 0 apr credit cards provide a good platform for the consolidation of such debts into one card. This is where 0 apr comes in. The zero apr is actually introductory apr which may not last beyond six months depending on the terms of the card. When you transfer your debts to 0 apr credit card within an approved period of time, it means you will not pay any interest on the transferred amount during the 0% introductory apr period. However, you may be asked to pay transfer fee on the amount so transferred. The transfer fee is usually at 3%. Few credit card companies may offer free transfer fee also. You should endeavour to pay off the debt within the 0% introductory APR. Failure to do so will result in paying high interest on the card balance at the end of each billing cycle. The interest can go up as high as 22.75% apr.
  • Big purchase: Apart from the debt transferred, 0% introductory APR may also cover purchases made during the period. This means that you will not need to pay interest on the card balance which might result from purchases you made during the introductory period. So, 0 apr credit cards are good for people that want to make big purchase but don’t have immediate cash to pay. For an example, if you are preparing for a wedding which may require that you buy many things within a short period of time, 0 apr credit card can be useful to you in this situation. It provides you free short term loans which you can repay within 0% introductory apr without paying any interest.

Whether you are transferring your debts or you intend to make big purchase, your ability to pay off the balance on the card within the 0% introductory apr period is very crucial. If you can’t make a full payment of your balance within this 0% introductory apr period, the cost of the interest you will pay on the balance may erode all the benefits you seemed to have enjoyed on the card before. So, before you jump into 0 apr credit cards offers, you should ensure that you will have enough liquidity to make a full payment of the card balance within the period of the 0% introductory apr. In order to ensure that you are making an informed decision, you need to consider the following before signing up to 0 apr credit cards.

  • Transfer fee: If you are paying transfer fee or say 3 % on the debts you are transferring, this automatically adds to the debt. Therefore, your repayment plan should include the payment of the transfer fee and not the principal alone.
  • Limits on transfer. Not all credit cards with 0 apr will allow you to transfer all your debts. There may be a limit on how much you are permitted to transfer. If the credit card company will not accommodate significant part of your debts, it may not make any difference opting for such card. Also, some of the credit cards with 0 apr will only allow you to transfer your debts within a specific date after your card has been approved. A typical example is the period of 60 days. This means that whatever amount you transfer after the date will attract interest.
  • Annual fee: If you are not paying interest on balance transferred and purchases as long you offset your debts and don’t carry balance on the card, you will begin to wonder how the credit card companies make their money. Some of these credit cards with 0 apr usually come with annual fee.
  • Length of 0% introductory apr period: The longer the 0% introductory apr period the better. This will give you opportunity to spread your repayment over a long time with little or no pressure on your ash flow. If the 0% introductory apr period is too short, you may find yourself in a situation that is worse than the former by the reason of high interest you will be paying on the outstanding card balance. Except you have new additional source of income, it may be difficult to pay enough amount every month that will be sufficient to offset the entire debts.
  • What does the 0% introductory apr cover? It will be an error to mistakenly believe that all credit cards with 0 apr will not charge interest on card balance on purchases made during the 0% introductory apr. Some 0 apr credit cards only allow zero interest on balance transferred while you will need to pay interest on balances arising from purchases. Therefore, you should be sure that the 0% introductory apr also covers your purchases.
  • Regular APR: After the 0% introductory apr period is over, the reality will then set in. some customers may not bother about what the regular apr will be. Forget about the usual advertisement of 12.75% – 22.45% apr you may have come across. What should interest you is the apr that the card company will apply to you. Each customer will be assessed based on their credit score. You can just imagine how much interest you will need to pay if the rate that will be applicable to you is 22.45%. Therefore, it will be an error if you base your calculation on 12.75% apr.
  • Late fee: Supposing you miss few days in making your monthly payment, will you be asked to pay late fee? How much is the late fee? These are parts of what you need to consider before accepting 0 apr credit card.
  • Other benefits: Apart from the 0% introductory apr period , are there any other benefits you can enjoy? There are card companies that offer free monthly FICO credit score in addition to the monthly statement on their 0 apr credit cards. Some will even go further by providing explanation about your credit score. In case there is anything you might need to quickly rectify so that your credit is not damaged, they will point it out to you. With this, you will be able to take corrective step. Additional reward such as cash back may also be features to look out for.

Read Also: How to Get Your Free Credit Report

  • Requirements: Supposing you received offers of credit cards with 0 apr, that means you have been pre-screened by the credit card companies that sent the offers. But I want you to know that such offers do not automatically qualify you for 0 apr credit cards. At the point of application, the card company will need to screen you properly. Your present credit score will determine whether your application will be approved or not. To get approved for 0 apr credit cards, you need to have good credit score at least while some will request for excellent credit score.

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