What if your 0% APR ends? – Forbes advisor
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Comparing features and options when applying for a new credit card is often a complex decision, but one attractive feature that can affect a cardholder’s decision making is an introductory phase of 0% APR (annual percentage). The 0% Introductory APR is a zero promotional rate that is typically offered to new credit card customers. It can apply to regular purchases, credit transfers, or both. After the introductory period has expired, the variable APR for purchases and / or credit transfers will be applied to all unpaid credits. 0% introductory APRs are for a set period of six months to two years (the exact period is determined by the credit card issuer).
What is 0% Introductory APR?
An introductory APR of 0% for purchases means that no interest will be charged on any daily purchase for a set period of time as long as the cardholder pays their bill on time in each billing cycle, even if the cardholder does not pay out their full balance at the end of each billing cycle. For example, the American Express Blue Cash Everyday® Card offers 0% introductory APR for 15 months on purchases made from the date the account is opened, after which a variable rate of 13.99% to 23.99% applies. (Conditions apply. See prices and fees).
An introductory APR of 0% for balance transfers means that a new cardholder can transfer existing debt from one credit card to the new card and receive no interest while making payments. Typically a one-time transfer fee of 3% to 5% is charged, but sometimes avoiding a relatively small fee is worth paying high interest rates on balances that are imminent or actively accruing. For example, the Citi® Diamond Preferred® Card card offers 0% introductory APR for 18 months for purchases from the date the account is opened and 0% introductory APR for 18 months for eligible credit transfers from the date of the first transfer. Thereafter, the variable effective annual interest rate is 13.74% – 23.74% based on your creditworthiness. There is a transfer fee of either $ 5 or 3% of the amount of each transfer, whichever is greater.
Advantages over 0% introductory APR
Consider these advantages when applying for a new credit card that offers 0% interest for any period of time:
- Make a great one-time purchase and pay off over time. If you’re buying an expensive item like a large appliance or a new TV, the option to pay off the balance over time can help make something more affordable. A credit card with 0% APR allows the buyer to do this and, if paid carefully, no interest to pay before the end of the introductory period.
- Pay off old credit card debt. Zero-interest introductory periods give the cardholder additional time to settle older debts. Cardholders can do this by transferring the balance from an old high-interest credit card to a new card with 0% introductory APR. Card issuers typically charge a small one-time fee that is added to the new balance, but this is often a small price to pay compared to high interest rates.
- Pay off other loans. Credit cards with 0% introductory APRs can be used to make a large payment on a loan, such as a home loan. The credit card balance can then be paid off interest-free over time. (Note that some lenders may charge a fee when a credit card is used to make payments.)
Disadvantages of 0% introductory APR
If cardholders fail to pay the fees by the end of the introductory period, they can pay more interest after the introductory period ends. Review all terms and conditions of a new card before applying. If you don’t create an aggressive payment plan, consider these drawbacks:
- The purchase interest accrues at the end of the introductory phase. If the card is used to make a large, one-time purchase, you must pay the full balance before the APR is applied to purchases. Otherwise, undesirable interest charges make initial purchases considerably more expensive.
- Interest for balance transfers is charged on the unpaid balance. Balance transfer APRs are often different from buy APRs. These prices can even be higher than the APR on the previous card from which the funds were transferred. This means that the cardholder may end up paying more interest than expected if he does not pay off all of the balance on time.
What happens when the 0% introductory APR period ends?
When the introductory period for a new credit card expires, a variable APR will be applied to any unpaid amounts. The APR on purchases and credit transfers vary from issuer to issuer and may depend on the cardholder’s credit history. The current tariff for each credit card can be found in the card agreement or call the number on the back of the card.
If there is still a balance by the end of the roll-out period, consider these options:
- Apply for a new card with 0% introductory APR. If maintaining a 0% interest rate is important, it may be possible to apply for and be approved for a new credit card that offers another 0% APR roll-out period. The cardholder can transfer the balance to the new card before the introductory phase of the previous card ends. In this way, the cardholder can continue to pay the remaining amount without high interest. Note that card hopping is not recommended if it is often a hassle to withdraw large amounts of money.
- Pay the remaining amount in a lump sum. The cardholder can choose whether to use savings or other cash to settle the remaining balance and not have to pay interest.
- Let the period end. At the end of the introductory period, interest will be applied to the unpaid balance. The cardholder can then make payments as usual in order to pay them off.
If the cardholder succeeds in paying out a full balance before the end of the introductory phase, there are various options:
- Tuck the card away and zero it. When all of the balance has been paid out, it is sometimes better to put the card away and leave it in a wallet or at home. A zero balance on a credit card helps improve the cardholder’s credit score over time by keeping the credit utilization low.
- Close the credit card account. Once the card has served its purpose, the credit card account can be closed. This could result in decreased creditworthiness if the cardholder’s credit load increases after the account is closed.
- Take advantage of other rewards. Check out the other credit card rewards or benefits. Since the balance is now zero, it is possible that the card could be kept as a backup option. For example, if the card offers car rental insurance, it can be a great option when traveling.
Remember, paying interest to the cardholder is still the only way for the cardholder to make punctual minimum payments with a credit card each month.
Introductory periods of 0% APR are beneficial for many cardholders, but they involve a low level of risk. Before applying for a credit card, do a thorough research of the terms and conditions. Whether you are making a credit transfer or just preparing a large purchase, it is important to know in advance whether it is possible to withdraw all of the funds before the end of the introductory period and what if interest is accrued. Schedule payments in good time to avoid unwanted fees.
To view prices and fees for the American Express Blue Cash Everyday® Card, please visit this page.