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 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, balance transfers or both until that period of time expires.
Benefits of 0% intro APR
A 0% intro APR on purchases can be helpful if you're planning a major purchase and can pay it off before the introductory period ends. It can also help you get a handle on an existing balance if you transfer that balance to the new credit card, provided your new card’s 0% intro APR applies to balance transfers.
Remember that you still, however, must make minimum payments on time during the introductory period. If you don’t make on-time payments, the credit card issuer may cancel the 0% intro APR and 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 is categorized the same way. It’s possible to have different 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 may work for different kinds of credit card transactions:
Purchase APR:
Purchase APR is the interest rate for purchases made on the card. A 0% intro APR may apply to new purchases.
Balance transfer APR:
Balance transfer APR is the interest rate for debts moved to your credit card account from another credit card or other lender. Balance transfers must be approved by the card issuer and often come with a balance transfer fee. However, credit cards with a 0% intro APR on balance transfer may offer that introductory rate for a significant period. Although the balance transfer fee may not be avoided, the introductory period can give you a substantial window to strategically pay down the balance transfer without accruing interest.
Keep in mind, even if you have a 0% intro APR on balance transfers, you may be charged interest on purchases made with the credit card unless you also have a 0% APR on purchases or you pay the entire statement balance, including the balance transfer amount, by the payment due date each billing period. Check the terms of your credit card for information. If this is the case on your card account, you may want to avoid purchases on the credit card and focus instead on paying down the balance transfer amount as much as possible during the introductory period.
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:
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
Let’s look at some ways to make the most out of your 0% intro APR period.
If you plan to do a balance transfer, think strategically about how you will use the time when the 0% intro balance transfer APR applies. How will you focus on paying down your debt?
If you have a 0% intro APR on purchases and want to use the card for shopping or making a large purchase, 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 during a 0% intro APR period. This is because any balance you carry on a credit card will increase your credit utilization ratio, which in turn will affect your creditworthiness.
If you make new purchases or transfer a balance, even if they don't accrue much or any interest, your credit utilization ratio will increase — which can impact your credit score. However, paying down your debt after new purchases or a balance transfer can be good for your credit utilization ratio. What's more, opening a new credit card account can increase 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 with a 0% intro APR offer, your creditworthiness can help determine the credit limit on your new card, which determines the amount that can be transferred.
Deferred interest offers vs. 0% intro APR credit cards
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. The difference 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 ends. A deferred interest offer, on the other hand, charges interest that accumulated on the entire balance during the introductory period. You’ll start 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 remaining $1,500. A deferred interest offer would instead charge interest on the $2,500 balance that accrued during the introductory period and begin charging interest on the remaining $1,500.
This is why it’s important to read the fine print on a credit card offer and stay aware of your timelines.
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.
