What does 0% intro APR mean on a credit card and how does it work?

What is a Credit Card introductory APR?

An APR, or Annual Percentage Rate, is the yearly interest rate charged on a credit card. Many credit cards offer an introductory period during which the APR is significantly lower than what it will be after the introductory period expires. In fact, it’s not unusual for this introductory APR to be 0%.

How does 0% intro APR work?

You might have received offers for a 0% intro APR credit card in the mail and wondered how you could have a credit card with no interest. A 0% intro APR credit card offer allows for an introductory period, usually over a set number of months, that starts as soon as the account is open and charges no interest on purchases, a balance transfer, or both until that period of time expires.

Benefit of 0% intro APR

The advantage of a 0% intro APR is that it can help you save money on interest. If you carry a balance on your credit card, a 0% intro APR can mean significant savings over the introductory period since the balance is not charged interest during that time. A 0% intro APR can also be helpful if you're planning a major purchase and are able to pay it off before the introductory period ends. You still, however, must make minimum payments on time during the introductory period. If you don’t make these on time, the credit card issuer may cancel the 0% intro APR and instead apply a penalty APR, which can be the highest APR on your card.

The 0% intro APR may not apply to all transactions

Not every activity on your credit card amounts to the same kind of transaction, and you can deal with varying interest rates on the same credit card, despite a 0% intro APR on purchases or balance transfers. Here's how the 0% intro APR offer works for different kinds of credit card transactions:

Purchase APR:

Purchase APR is the interest rate for new purchases made on the card. This might be covered under your 0% intro APR offer depending on the details of the offer.

Balance transfer APR:

Balance transfer APR is the interest rate for debts moved to your credit card account from another credit card. Balance transfers must be approved by the card issuer and often come with a balance transfer fee. However, you may find credit cards with 0% intro APR offers on balance transfers for a significant period of time, which can help you strategically pay down debt moved from another credit card.

Cash advance APR:

Cash advances are not covered under a typical introductory APR offer. With a cash advance, you will likely begin accruing interest from the date the transaction posts to your account, and the interest rate is often higher than even the standard purchase rate.

Penalty APR:

Unfortunately, an introductory APR doesn’t protect you against a penalty APR. If you fail to make a minimum payment on time, the credit card issuer might end the introductory APR and instead charge a high penalty APR in its place.

Keep an eye on the length of time for the 0% intro APR

Making the most out of your 0% intro APR period is essential.

If you're planning to do a balance transfer, think strategically about how you're going to use the time when the 0% intro APR on balance transfers applies to focus on paying down your debt.

On the other hand, if you want to use the card for shopping with your 0% intro APR on purchases, make sure the balance is fully paid off before the introductory period ends and the standard purchase rate begins, or that balance will begin to accrue interest.

A 0% intro APR credit card can impact your credit score

Because of the way your credit score works, it can still be impacted by purchases or balance transfers made on a credit card during a 0% intro APR period.

One of the key factors is the credit utilization ratio. This is the percentage of all your lines of credit that is currently in use. If you make new purchases, even if they don't accrue much or any interest, your credit utilization ratio will increase — which may be bad news for your credit score.

However, if you pay down your debt after a balance transfer, that can be good for your credit utilization ratio. What's more, opening a new credit card account can increase your credit utilization ratio as well by increasing your total available credit.

Know what it takes to qualify for a 0% intro APR offer

To qualify for a 0% intro APR offer, it's best to have excellent credit and a good payment history.

Furthermore, if you want to do a balance transfer when a 0% intro APR offer on such transfers is available, your creditworthiness, among other things, may also factor into the credit limit available on your new card, which determines the amount that can be transferred.

Deferred interest offers vs.  0% intro APR credit cards

One thing to consider when looking for a 0% intro APR credit card is the difference between it and a deferred interest offer.

Both deferred interest offers and 0% intro APR cards do not charge interest if you pay off the entire balance before the introductory period expires. What separates them is what happens when you don't.

A 0% intro APR credit card will only start to charge interest on the remaining balance once your introductory period has ended. A deferred interest offer, on the other hand, charges interest on the entire balance that accrued during the introductory period, even if part of that balance was paid before the introductory period ended and starts charging interest on the remaining balance after that period.

For example, if you charged $2,500 during an introductory period and paid $1,000 before that period ended, a 0% intro APR credit card would only start charging interest on the $1,500 balance that remains. A deferred interest offer would instead charge interest on the entire $2,500 balance that accrued during the introductory period and begin charging interest on the $1,500 balance that remains.

This makes it vital to read the fine print and stay aware of your timeline.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

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