A no-interest, or 0%, credit card means you won’t be charged any interest on your purchases for a certain period of time. In some cases, these cards also offer 0% interest on balance transfers for a set period of time.
But these cards also have some potential downsides. For one, the 0% annual percentage rate (APR) is only temporary. Once the promotional period ends, a potentially high APR will start accruing on any remaining balance you have on the card. In addition, you typically have to pay a fee to transfer your balance, which might negate any savings on interest.
Here are key things to know before signing up for a no-interest credit card.
Key Points
• No-interest credit cards offer interest-free periods, typically six to 18 months.
• They can help pay off high-interest debt faster.
• Missing payments can lead to losing the 0% introductory APR.
• Balance transfer fees are often required.
• Interest rates post-promotional period can be much higher and could lead to accruing debt.
Pros of No-Interest Credit Cards
Using a 0% APR credit card can create some breathing room within your budget. Here’s a look at some of the key perks, and how to make the most of them.
No Interest During the Promotional Period
Of course, one of the biggest advantages of a zero-interest card is that you’ll pay just that — zero interest — for a certain period of time, which may be anywhere from six to 18 months or perhaps a bit longer. If you use the card to make a large purchase and are able to pay it off in full before the end of the promotional period, it can be the equivalent of getting an interest-free loan.
Opportunity to Pay Down Debt Faster
In some cases, you also get the 0% APR on any balance you transfer over from another credit card. This can make a no-interest card a good option for consolidating and paying off high-interest credit card debt. If you have a plan in place to pay off the debt within the promotional period, a balance transfer could improve your financial situation.
💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.
Perks and Bonus Rewards
Some credit cards with 0% APR introductory rates on purchases and/or balance transfers also have additional rewards bonus programs. This might include a welcome offer and/or cash back or rewards points based on each dollar you spend. These extras can lead to even more savings.
For example, say you want to purchase a new chair that costs $500. After some research, you find a credit card offering an introductory 0% APR for 15 months and a $200 rewards bonus after you spend $500 on purchases within the first three months of opening the account. You decide this will work for your financial situation, so you apply and are approved. After buying the chair with the new credit card, you pay the balance in full before the promotional period ends.
With this example, not only would you have paid nothing in interest, you would also have netted $200 in rewards cash.
Cons of No-Interest Credit Cards
Some might look at no-interest credit cards as too good to be true. That’s not necessarily the case, but there can be some drawbacks to them. Here are some potential pitfalls to be aware of.
Temporary Promotional Rate
Alas, that 0% APR doesn’t last forever. If you use the card for a large purchase but are unable to fully pay it off before the end of the promotional period, any balance will start accruing the card’s regular APR.
At that point, the card may not have any advantages over any other card. In fact, the card could have an APR that is higher than the average credit card interest rate. When comparing 0% rate cards, it’s important to look at what the rate will be when the promo period ends and exactly when it will kick in.
Also keep in mind that you could lose the 0% intro APR before the end of the promo period if you are late with a payment. Here again, it pays to read the fine print.
Fees for Balance Transfers
Some — but not all — no-interest credit cards also feature a 0% APR on balance transfers. However, you typically still have to pay a balance transfer fee, often around 3% to 5% of the transferred balance. If you’re transferring a large balance from another card, the balance transfer fee could actually be significant. You’ll want to do the math before making the switch to be sure it will work in your favor.
Interest May Apply Retroactively
Similar to a no-interest credit card, a deferred-interest credit offer is one that’s commonly a feature of retail or store cards. If you’ve been asked if you’d like to apply for a store’s credit card when you’re making a purchase, it might be one that comes with a deferred interest promotion.
Like no-interest credit cards, a deferred-interest card doesn’t charge interest as long as the balance is paid in full within a certain time period. The biggest difference between the two: If the balance is not paid in full before the promotional period ends, interest will be applied to the entire purchase — not just the remaining balance. And APRs on deferred-interest cards can be even higher than APRs charged by regular credit cards.
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Can Credit Scores Be Affected by No-Interest Credit Cards?
Applying for a new credit card results in a hard inquiry on your credit report, which can have a minor, temporary negative impact on your credit scores. This is generally nothing to worry about.
However, repeatedly opening new credit cards and transferring balances to them can cause a long-term negative impact on your credit. That’s because too many hard inquiries too close together can lead lenders to believe you’re applying for more credit than you can pay back.
While no-interest credit cards have their advantages, credit card debt could escalate. If that occurs, it can be wise to seek credit counseling or look into a credit card consolidation loan, which can offer a lower interest rate and streamlined payments.
The Takeaway
A 0% intro APR card can help you avoid paying interest on your purchases for a set period of time. It can also allow you to consolidate and pay down credit card debt faster.
Keep in mind, however, that cards with no interest often come with a balance transfer fee. Also be aware that your interest rate will likely be much higher when the intro APR offer ends if you haven’t paid off your balance by then. Another option could be paying off high-interest credit cards with a personal loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
Is it a good idea to get a zero-interest credit card?
If you make on-time payments and pay off your balance before the intro period ends, then it can be a good idea to get a 0% APR credit card. But if you overspend and carry a balance, you may face high interest rates when the introductory period is over.
Does a 0% credit card affect your credit?
Credit bureaus don’t look at your interest rate, but they do look at your credit limit and what percent of that you are utilizing. So in that way, no-interest cards can impact your credit score. Also, when you apply for one of these cards, the issuer likely conducts a hard credit pull, which will usually lower your score by a few points temporarily.
Is 0% interest a trap?
A 0% interest credit card can be a valuable financial tool if used responsibly. However, if you can’t pay off your balance, when the introductory period ends, you may be stuck with your debt growing thanks to the high interest rate that kicks in. In that way, you could find yourself in a debt trap.
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