Using a no-interest credit card can be a smart financial move if it’s judiciously used for brief periods of time.
Paying the account balance in full before the zero-percent interest period ends is paramount to making the most of an offer like this. Interest, which can be quite high even at the low end of most ranges, will typically start accruing on any remaining balance after the promotional period ends.
There are some ways a 0% APR credit card can be useful in the short term, but there are also downsides to watch out for — some of them significant. There are also other strategies to fund purchases or pay off debt that might work better for your financial plan.
Pros of No-Interest Credit Cards
There are certain situations in which using 0% APR credit cards can create some breathing room within a budget.
Making the Most of the Promotional Period
Making a planned purchase — perhaps an expensive one — with a no-interest credit card can be a good use of a card like this.
One scenario is that you’ve saved the money to pay for this expensive item in a high interest savings account and you’d like to continue earning interest on that money for as long as you can. Putting the expensive purchase on a credit card without having to pay interest right away could allow you to earn a bit more interest on your money.
Making sure the credit card balance is paid in full before the promotional period ends is a good way to earn additional interest on your savings while taking full advantage of the 0% APR period.
Transferring a High-Interest Balance
If you have high-interest credit card debt and are looking for a way to decrease the amount you pay in interest charges, transferring those balances to a credit card with a 0% APR could be one way to go.
Having a plan to pay off the debt within the promotional period while no interest is accruing on the transferred amount is important. But with a plan in place, you may be able to put yourself in a better financial situation. That, in turn, can be helpful in getting affordable financing for other purchases in the future.
Doubling the Incentive
Some credit cards with 0% APR introductory rates on purchases and/or balance transfers also have additional rewards bonus programs. With a planned purchase, as in the example above, taking advantage of a rewards card could potentially mean earning money on the purchase.
For example, you want to purchase a new chair that costs $500. After some research, you find a credit card offering an introductory rate of 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 furniture — paying for it 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.
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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. Paying attention to the small print is important.
Temporary Promotional Rate
Credit card issuers that offer promotional rates put an end date on the rate — they don’t last forever.
If you’ve paid for a relatively expensive purchase with a no-interest credit card, you might intend to pay the card’s balance in full with money you expect to receive in the future, such as a work bonus. But what if you don’t receive as generous a bonus as you expected? Or the bonus isn’t deposited into your bank account when you thought it might be?
No-interest credit cards charge no interest only during an introductory period, which averages anywhere from 12 to 20 months. If you cannot pay the account balance in full before the 0% APR promotional rate ends, the interest rate on the remaining balance will revert to the card’s regular rate. It’s a natural inclination to see the “0%” part of the deal and not think about what the regular rate would be after the promotional period ends, especially if you had a plan in place to pay off the balance during the no-interest period.
Fees for Balance Transfers
There will likely be fees for balance transfers on cards with 0% APR introductory rates. Balance transfer fees are commonly charged by many credit card issuers, not only on promotional-rate cards, but the percent range can vary from card to card. Some cards charge a 3% to 5% transfer fee, while others may charge more. The lower the percent charged on the amount you’re transferring to a new card, the less you’ll have to repay overall.
Interest May Apply Retroactively
Similar to a no-interest credit card, a deferred-interest credit offer is one that’s commonly used by individual retail stores. 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, though, is that if the balance is not paid in full before the promotional period ends, interest on the entire purchase — not just the remaining balance. And APRs on deferred interest cards can be even higher than APRs charged by regular credit card issuers.
Can Credit Scores Be Affected by No-Interest Credit Cards?
If you get caught in a cycle of balance transfers, going from one zero-interest credit card to another, that has the potential to negatively impact your credit score. And if your plan is to close the high interest credit card you just paid off, that could also have a negative impact. Keeping a credit card for several years signals stability to the credit bureaus, especially if you’ve at least made minimum payments on time.
The Takeaway
No-interest credit cards aren’t the only option for paying off debt. You may also be able to pay off high-interest credit cards with a personal loan. A personal loan calculator can give you an idea of what your potential savings might be.
SoFi Personal Loans have fixed interest rates so there’s no uncertainty about your interest rate going up. And one low, fixed-rate personal loan can be easier to manage than monthly payments on multiple credit cards.
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