These cards are also known as the 0% APR credit
cards. APR, short for Annual Percentage Rate, is a calculation of the
cost of credit, measured as a yearly rate. When you apply for the card
its APR is made known to you prior to committing to the card and must
always be present on your statements.
Zero percent interest rates
credit cards came about with the emergence of monoline banks. Back in
history, every card holder paid a standard APR based on the banks
rates. Monoline banks offered credit cards that did not take any
deposits or issue conventional loans.
These banks realised that for them to survive they
needed to have a huge customer base so they introduced low to zero APR
rates to get new customers. This tactic worked well and today its had
to find an issuer of credit cards not offering 0% APR during the first
6 -12 months. In
fact, the most popular credit cards offer zero percent interest during
the first 6 months to 1 year.
The most obvious advantage of
zero percent credit card is for those with huge balances which need to
be paid on their current cards. For example, if your credit card debt
is about $20,000 and the card APR is 20% then you will end up paying a
whooping $4,000 in interest payments alone! If you have a 0% APR card,
the $4,000 could be used towards reducing that massive debt. Clearly,
for people with a huge credit card debt, zero percent credit cards
would offer some relief.
If you've decided on a 0% APR credit card, please
read the fine print to find out :-
- How long the no-interest period will last.
- Whether its possible to transfer other balances at
the 0% rate. Some issuers
- What the APR rate will be when the offer ends (VERY
IMPORTANT!) - Some charge a very high interest after the
introductory period.
Zero percent APR credit cards
are probably not worth it if you pay all of your balances every month.
Be careful that you do not transfer very huge balances eg $4,000 if you
know that you will not be in a position to pay off before the
introductory interest free period is over. You could end up paying
higher interest rates than the original one on the remaining balance.
Also note that If you apply for a 0% APR credit
card find out:-
- What the 0% APR will apply to. It might only apply
to the balance that you might have transferred onto the credit card and
not any new purchases you make.
- Also note that the payments you make may
go towards paying off your balance which you aren’t paying
interest before paying off new purchases - which you are. So if you are
making new purchases and want to transfer an existing balance you are
better off with 2 cards
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ZERO PERCENT INTEREST CREDIT CARDS