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How 0% APR credit cards work?

Key takeaways

  1. A 0% APR credit card provides a temporary interest-free period, typically 6-21 months, and may apply to purchases, balance transfers, or both

  2. Balance transfer fees, late payment penalties, and high post-promotional rates can impact the financial benefits of these offers

  3. Create a repayment plan by calculating the monthly payments needed to eliminate debt during the 0% period to avoid paying higher regular rates afterward

Perhaps you've seen ads or received a promotional offer for a 0% interest rate credit card. Maybe the ad mentioned debt consolidation and how a 0% intro APR credit card is a valuable tool for managing credit card debt. 

But exactly how does a 0% APR credit card work? This type of credit card offer can take many forms, so it's important to learn the ins and outs about them.

What does 0% APR mean?

APR stands for Annual Percentage Rate , which is the yearly cost of borrowing money. An APR of 0% on a credit card generally means the credit card issuer is not charging interest on certain balances for a specified time.

Depending on the credit card offer, the introductory period can vary. The 0% APR may be applied to different types of balances. And if you fail to follow the terms and conditions for the credit card account, that 0% rate could increase sharply. In any event, when the introductory period ends, the APR will increase.

To take advantage of a 0% APR offer, it's important to make the most of the interest rate during the introductory period.

Different types of APR

Credit cards can have several types of APR. It's important to know the differences between them, because they can greatly influence what you might be required to pay each month.

Purchase APR

The interest rate that's applied to your balance from purchases made on your card is called purchase APR. During a promotional period, the purchase APR might be set at 0% or a low rate. However, depending on the offer, the introductory rate might not apply to the purchase APR at all. 

Balance Transfer APR

A balance transfer occurs when you move debt from one credit card to another. The balance transfer APR is the interest rate you pay on the amount transferred. When the introductory period ends, the low or 0% balance transfer APR goes away. If you have not paid off what you transferred over, you'll have to pay a new APR on the remainder. That rate typically is the purchase APR.

Cash Advance APR

The cash advance APR is the rate applied when you use your credit card to get cash. Interest charges typically begin to accrue the day you take the cash advance. This rate tends to be higher than the purchase APR.

Penalty APR

If you fail to make a payment for 60 days, your credit card issuer may raise your regular APR to a much higher penalty APR. This penalty APR might also kick in if you have a payment returned for insufficient funds or break the terms of your agreement in some other way. Different card issuers have their own rules about penalty APRs. The penalty APR could be temporary and withdrawn after you've come back into compliance with the account's terms.

How do 0% APR credit cards work?

Interest-free financing can be a great money-saving strategy. It could enable you to buy big-ticket items or transfer high-interest balances and not face interest charges during the payoff period. The savings can be substantial.

Some cards offer 0% APR intro offers that cover both purchases and balance transfers, but it's up to you to make sure the card you select meets your needs. If you plan to make purchases, verify that the intro 0% APR applies to purchases and not just balance transfers. And the reverse applies: If you want to transfer debt, make sure the card's 0% intro APR applies to balance transfers.

For balance transfers, you also need to inquire about the credit limit for your card. If you can transfer only half of what you were counting on to the new card, you'll still have to deal with the high interest charges on the debt you can't transfer.

That interest-free introductory period can vary across different cards—typically from 6 months to 21 months. Also, there may be deadlines for when you must transfer a balance after the account opens and still get that 0% APR.

Benefits of 0% APR credit cards

Moving a balance that's incurring a high interest rate to a 0% APR card can save a significant amount of interest. The key is to figure out beforehand how much you would have to pay each month during the introductory period to pay off the debt before interest charges start up again.

The same math applies for purchases, but it's a little more complicated because the 0% APR could apply to any number of purchases made during the introductory period. You'll need to monitor your spending to make sure you don't get caught with a large balance at the end of that period with no way to pay it off before the interest rate increases.

What to consider when looking at 0% APR credit cards

 

It pays to know the rules before applying for a 0% APR credit card. Things to consider may include:

  1. Temporary intro period. Make sure you're certain of how long the intro period is, what the 0% APR will apply to, and whether there are any deadlines that must be met during that period

  2. Balance transfer fees. This fee is typically 3%-5% of the balance that's being transferred. That would be $30 to $50 on a $1,000 balance. Depending on the amount of money you're transferring, it might be worth your time to shop around for a lower fee

  3. Late payment penalty. If you miss a payment, the card issuer could revoke the 0% APR offer. Read the fine print to see what might cause you to lose that 0% APR before you're ready to

  1. New purchases. Some cards apply the 0% APR to both transfers and purchases, but some don't. If your card is a 0% balance transfer card, be aware that new purchases will be charged at a standard interest rate. You might want to avoid using it for purchases so you can stay focused on paying off the balance during the intro period

  2. High regular APR. Pay attention to the regular purchase APR, because that's what you'll be paying after the introductory period. It could be so high that the card might be unattractive after the introductory period. And if you're not certain you can pay off your balance during the intro period, a high purchase APR could be something to avoid

How to get the most benefits from a 0% APR card

 

0% APR cards can be quite useful and valuable. To maximize your benefits, consider these best practices:

  1. Read the fine print. Understand the rates, conditions, and offer timelines. See if the fees or conditions make the 0% deal work for you

  2. Create a repayment plan. Add your balance transfer fee to the balance. Divide that amount by the number of months in the introductory period. Can you afford to pay that amount every month during the introductory period. If so, you'll have escaped paying interest on the debt. If not, you'll have to figure out what the balance would be and redo the math with the purchase APR that will take over. This could help you see whether you can still come out ahead, even if having to pay some interest

  3. Pay off the balance in full. Make the monthly payments you calculated and pay off the balance before the 0% APR expires. Only make new purchases if they're also at 0% APR. Even then, make sure you'll be able to eliminate the entire balance before the introductory period ends

Credit Cards offered at TD Bank

Explore TD Bank credit cards to find the right offer for you and your financial goals.

This article is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.

TD Double Up Credit Card
*Read important Credit Card Terms and Conditions for details about rates, fees, eligible purchases, balance transfers and rewards program rules.

TD Cash Credit Card
*Read important terms and conditions for details about rates, fees, eligible purchases, balance transfers and rewards program rules.

TD FlexPay Credit Card 
*Read important terms and conditions for details about rates, fees, balance transfer rules.

TD Clear Visa Platinum Credit Card with a $1,000 Credit Limit 
*Read important terms and conditions for account details. The Clear Platinum Visa Credit Card with $1,000 Credit Limit has a $10 monthly membership fee. The monthly membership fee will be added to your monthly billing statement each month as a charge, whether or not you use your account, and applied against your available credit like other charges.

TD Clear Visa Platinum Credit Card with a $2,000 Credit Limit 
†Read important terms and conditions for account details. The Clear Platinum Visa Credit Card with $2,000 credit limit has a $20 monthly membership fee. The monthly membership fee will be added to your monthly billing statement each month as a charge, whether or not you use your account, and applied against your available credit like other charges.

TD First Class Visa Signature Credit Card
*Read important Credit Card Terms and Conditions for details about rates, fees, eligible purchases, balance transfers and rewards program rules. If you take advantage of a 0% introductory or promotional Annual Percentage Rate (APR) balance transfer offer and then use your Account to make new purchases, you can avoid paying interest on those new Purchases if you pay each month by the payment due date the “Payment to Avoid Purchase Interest” amount shown within the ‘Payment Information’ box on your Account Statement. 

1Bonus miles will be reflected on your credit card statement 6 to 8 weeks after a qualified first purchase and/or 6 to 8 weeks after $3,000 in total net eligible purchases made within the first 6 billing cycles of your credit card account opening date. This offer is non-transferable. This One-Time Bonus Offer is not available if you open an account in response to a different offer that you may receive from us or if you previously received a One-Time Bonus Offer on this account or any other account with us. Eligible purchases do not include purchases of any cash equivalents, money orders, and/or gift cards or reloading of gift cards. Groceries purchased from superstores and/or warehouse clubs may only earn 1 mile for each dollar spent.

TD Cash Secured Credit Card
*Read important Credit Card Terms and Conditions for details about rates, fees, eligible purchases, balance transfer and rewards program rules. Eligible purchases do not include purchases of any cash equivalents, money orders, and/or gift cards or reloading of gift cards.

TD Business Solutions Credit Card 
*Read important terms and conditions for details about rates, fees, eligible purchases, balance transfer and rewards program rules. The person applying for the account is individually liable for the payment of all balances on the account and all cards issued pursuant to this application.

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