Do 0 interest credit cards exist? Of course, there are credit cards that allow you to make purchase without you having to pay interest on the card balance. If you are new to credit cards, this may sound unbelievable. I want you to clear your doubt as zero interest credit cards actually exist. What most people know about credit cards is high apr or interest rates. Well, that may be for the regular credit cards or credit cards for people with bad credit. Regular credit card companies will issue you a card so that you can use it to make purchases to a certain limit which is known as credit limit. Your credit limit is usually determined by many factors such as your income level and your credit score which is used to gauge your credit worthiness. Any time you use the card to make purchase, you are actually borrowing from the card issuer as you are not paying for the item immediately. This can ease your liquidity problem to a certain extent. However, you are expected to pay off the card balance at the end of the month. If you can’t pay the total card balance, you should be able to make, at least, the minimum payment. Any time you carry balance on your card, you will be charged interest. That is how credit cards work?
But how come 0 interest credit cards? This question is expected. The credit cards market is very huge and just one type of credit card cannot meet the needs of the numerous customers out there. The needs of customers are not the same. Therefore, 0 interest credit cards are available to meet the needs of certain category of card users. However, you need to understand that 0 interest credit cards may not be available to every Dick and Harry. This type of card is available to people with good or excellent credit score. Another reason why 0 interest credit cards exist is as a result of growing competition in the credit card industry. Credit card companies use 0 interest credit cards to woo customers. Who doesn’t like free things? Who won’t like a card that you can use to make purchase and you will not pay interest on the card balance at the end of the month? This offer is actually enticing. But there is a caution here. 0 interest credit cards will not grant you 0% interest rate forever. All 0 interest credit cards have 0% introductory APR period ranging between 12 months and twenty one months. This means that you will not need to pay interest on your card balance as a result of the new purchase you make during the 0% introductory APR period. Thereafter, interest rate will apply. The apr may be higher than that of regular credit cards. The apr can range between 15% and 24%. The apr that will apply to you will depend on your creditworthiness.
Advantages of 0 interest credit cards
If you are thinking of getting 0% interest credit cards, the following are the benefits you can enjoy from using the cards
- Large purchases: If you intend to make large purchases and you don’t have cash to pay immediately, zero interest credit card can be very useful to you. It is possible that you just get a new apartment and you want to buy new set of furniture and appliances. The card will help you spread the cost over a period of time without the need of paying extra as interest charges as long as you pay off the amount within the 0% introductory APR period. This means you may not need to wait till the time you have cash stacked up in your savings account before you can make major purchases. If you are to wait till the time you have enough money to make the purchase in cash, you may wait endlessly. You will always have needs that will require that you spend. When such needs arise, the first point of call will be your savings account. Somebody may even approach you for loans or financial assistance. You may find it difficult to decline when you know you have the money. That is one area that 0 interest credit cards can actually help you lock in your money in order to ensure that you actually use the money for what it is intended for.
- High Interest loan repayment: 0 interest credit cards may not be restricted to new purchases only. Some credit companies extend the 0% introductory APR period to cover the balance transferred from other cards within a specified period of opening the account. It is possible that you have balances on other cards on which you are paying very high apr. High interest rate can actually make it impossible for you to pay off your card balance on time. You may realise that greater part of your monthly repayment is being used to service the interest element of the card balance. This can create a heavy financial burden. When you transfer such card debt into 0 interest credit cards, you can quickly pay off the balance during the 0% introductory APR period. If you can’t pay off the entire card balance during the 0% introductory APR period, you must ensure that you have significantly paid it down. Otherwise, it might be like a case of jumping from frying pan into the fire as the interest rate on 0 interest credit cards after the initial 0% introductory APR period is usually high. Before you transfer your balance, you need to consider the transfer fee. The new card issuer will charge you a transfer fee on the balance being transferred. This is usually in the range of 3%. If the transfer fee is higher or almost equal to the interest you will save on the transferred amount, the exercise may not be worthwhile.
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- Holiday/Vacation Expenses: If you want to embark on holiday or vacation, the chance is that you will make a lot of purchases. During holidays such as Christmas, people buy a lot. This time around, it may not necessarily be a one large purchase. Accumulation of various small expenses can easily add up to become a huge amount. With your zero interest credit cards, you will avoid paying interest charges on the card balance. It is expected that you should be able to pay off the entire amount before the 0% introductory APR period expires. Otherwise, it may be considered financial recklessness to spend the amount you cannot pay back within 12 months on holiday or vacation.
- Interest Free: I have been saying this all through. That is the essence of any zero interest credit cards. You can just imagine how much of interest amount it will save you especially if you use the card to make a large purchase.
- Other benefits: Besides the 0% introductory APR, some credit card companies also offer other attractive perks such as cash back/cash reward intro bonus, no annual fee and no penalty APR. Cash back is the bonus you enjoy on purchases when you make purchase with the card. This can be around 1%. You can use the cash back or cash bonus to make extra purchase. This is like putting cash back into your pocket for you to spend. No penalty APR implies that the interest rate you pay may not necessarily increase in case you make late payments. Some cards issuers will also provide you a free platform to access your credit score. If you are a regular traveller, you may not pay foreign transaction fee while some will not charge you over limit fee. You may not get zero interest credit cards that will offer all these perks. You just need to look for the one that has features that you need and go for it.
Disadvantages of 0 interest credit cards
Having let you know the benefits you can enjoy from zero interest credit cards, I don’t want you to be carried away by them. You should not because of these and decide to close your regular credit card and think you have finally discovered the best credit card in the world. Therefore, you may need to consider the following:
- It may require very high credit score: 0% interest credit cards are not for people with bad credit. If your credit is bad, you may need to get a card that will help you improve your credit scores. There are specific cards for people with bad credit.
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- Balance transfer fee: If you are transferring balances from other credit cards, transfer fee will definitely apply. If you don’t carry out thorough cost and benefits analysis, what you will pay as transfer fee may offset the savings you will make from not paying interest charge. Furthermore, in some credit cards the zero per cent interest rate will only cover new purchases and not balance transferred. Others will only limit the 0% interest rate to the transfer you make within a specific period after you opened the account. This means that if you transfer any amount after the specified period, interest will apply.
- Subsequent high interest rate: 0 interest credit cards do not offer zero per cent interest rate forever. You need to watch out for the 0% introductory APR period. The longer this period, the better. That will give you ample time to pay off your card balance before the interest rate begins to apply. Please, the apr after the 0% introductory APR period is usually higher than that of the regular credit cards. Therefore, 0 interest credit cards are good for people who don’t intend to carry balance on their cards.
- You need to make at least minimum payment: Don’t be carried away by the zero interest rate offer. You need to read the terms and conditions that apply and other fine prints. During the 0% introductory APR period, you may still need to make certain minimum payment every month. Failure to do so may negate the terms and conditions that are attached to the offer. This may make the card issuer to start charging you interest on the card balance.
- Cash Advance: You should note that cash advance is treated differently from normal purchases. If you use your zero interest credit cards to make withdrawal from ATM, withdrawal fee will apply and you will be charged interest on the amount withdrawn. The interest rate may even be higher than the normal rate. Also, the credit card issuer will not wait till the end of the month before starting charging interest on the amount withdrawn. The interest charge will commence immediately. The only way to eliminate or reduce the interest on withdrawal is to ensure that you pay off the amount almost immediately. The best thing to do is not to use the card to withdraw at all.