How Do 0% APR Credit Cards Work? Everything You Should Know

A 0% annual percentage rate (APR) credit card can help you save money by allowing you to skip interest charges for some promotional length of time. The 0% offer will only last as long as you adhere to all the terms and conditions laid out by your cardmember agreement. Being late on a payment can cause the promotion to end and your regular APR to kick in. A 0% APR credit card will not charge you interest retroactively on purchases you have not paid off—only on any balance that remains after the promo period wears off.

What Is 0% Purchase APR?

When a credit card provides 0% APR it means you don't have to pay interest on purchases charged to it for some specified amount of time—usually between 12 and 21 months. Once a 0% APR period runs out, the card's regular ongoing APR will take over. Unless otherwise noted in the terms and conditions, you will still be charged interest on other types of transactions, such as balance transfers and cash advances. It's possible to get 0% interest on balance transfers too, though this requires a special type of credit card.

A 0% interest rate is not always well advertised by a card issuer. To know for sure whether a card is running this type of promotion, you will need to look at the offer's Schumer Box—accessible by clicking 'Pricing & Terms' or something similar on a credit card's bank landing page. The first part of a Schumer Box details a card's interest rates and interest charges. The APR is broken down by the type of transaction—a purchase, a balance transfer or a cash advance.

Example of a 0% APR offer displayed in a Schumer Box.

The 0% APR offer can be terminated if you violate any of the terms and conditions of your credit card agreement. This can happen if, for example, if you fail to make a minimum payment by its due date.

Once the zero-percent period runs out, you will be responsible for any interest charges that accrue after. For example, if you buy a new camera 10 months into a 12-month 0% period, you won't pay interest on it for 2 months. After the third month onwards, interest will begin to accumulate on any unpaid balance. If you fail to pay off a purchase that was made during a 0% period, you won't be charged interest retroactively for those first two months.

0% APR vs Deferred Interest Credit Cards

Though similar, 0% APR credit cards and deferred interest credit cards have different financial consequences. If you fail to pay off the balance on a deferred interest credit card by the time the no-interest period runs out, the finance charges will be applied retroactively. Deferred interest offers can be most commonly found with store credit cards. If you're signing up for a credit card that promises not to charge interest for some time, make sure to find out whether it's a 0% APR card or a deferred interest promotion. The Consumer Financial Protection Bureau (CFPB) has recently put out an advisory asking retailers to make this distinction clearer.

One CFPB study found that many consumers who do not repay their balance on these types of store cards have the means to. The study showed people paid off the remainder of the balance shortly after the promo period, once the deferred interest charges kick in. According to the CFPB, the finance charges catch consumers by surprise.

How Does 0% APR Work With Balance Transfers?

Some credit cards allow you to transfer a balance from another credit card and then enjoy a 0% APR on that debt. These are commonly referred to as balance transfer credit cards. The same rules that govern 0% purchase APR credit cards apply to balance transfer cards. If, for whatever reason, you fail to make a minimum payment or violate your terms and conditions, the 0% promotion will end.

While balance transfer cards don't charge interest, most do impose an origination fee. When you move your balance over, you'll be charged anywhere between 3% to 5% of the total amount being transferred. In most cases, this fee will be minor when compared to the savings you get from deferring your interest. Use the tool below to see how much you can save by using a 0% balance transfer credit card to pay down your debt.

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How to Avoid Paying Interest on Your Credit Card

You will never have to pay interest on a credit card so long as you pay off your balance by the end of your grace period. By law, you are entitled to at least 21 days from the time you receive your bill to pay off a balance, before incurring finance charges. This no-interest timeframe is referred to as a 'grace period'. Some credit cards will extend the grace period to 25 days.

You can find out a credit card's grace period by examining the Schumer Box, which we explained above. It can be found in the interest rates and charges section near the top.

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