Getting ready to make a big purchase? You could also get short-term financing in the form of a personal loan, mortgage, or mortgage line of credit. However, if you can pay off the entire amount you borrow within a year or so, a 0 percent APR credit card is a better option. This type of card can save you a lot of money that you would have spent on interest.
We’ll explain in detail how this type of credit card works and how you can potentially use it as an interest-free loan for big purchases.
How the 0% Sign-Up Bonus Credit Card Works
The terms 0 percent introductory APR card and balance transfer card are often used interchangeably, but they’re technically different: Balance transfer cards have a 0 percent introductory APR period specifically for balance transfers, allowing you to move high-interest debt from another card and avoid interest while you pay off the balance you’ve moved onto the balance transfer card.
A 0 percent introductory APR card generally refers to a card that has a 0 percent introductory APR offer of any kind that may apply to balance transfers, new purchases, or both, depending on the terms of the card. If a card’s 0 percent introductory APR only applies to new purchases, it doesn’t qualify as a balance transfer card.
The 0 percent APR introductory period offered on this type of card varies depending on the card, but is usually between six and 21 months. Once the introductory period ends, the interest rate on any outstanding balances and future purchases will increase to the standard (usually variable) rate.
“From there, your interest rate will depend on your creditworthiness,” says Laura Sterling, vice president of marketing at Georgia’s Own Credit Union. “Often, cards that offer a 0 percent interest rate during an introductory period charge a higher standard interest rate than cards without an introductory perk, but that’s not always the case.”
Balance transfer cards and 0 percent introductory APR cards come with different features, so you should compare these benefits to your needs before applying. Also, be aware of fees, such as annual fees or balance transfer fees, that may affect the overall cost of using the card.
How to use your 0% APR card as an interest-free loan
It’s possible to use a 0 percent introductory APR card as an interest-free loan for a larger purchase. Look for a card that offers 0 percent interest on purchases and prioritize paying off your purchases before the promotional period ends. If a card only offers 0 percent introductory APR on balance transfers and not on new purchases, it’s possible to use it to fund a future purchase, but it’s not ideal. You’ll need to charge the purchase to another card and transfer the balance to the 0 percent introductory APR card within the required time frame. You may incur balance transfer fees in the process.
Let’s say you’re looking to buy a new refrigerator. If you use a new 0 percent interest card for that purchase, you can pay for the purchase without any additional interest for up to 21 months, depending on the card. To reach that goal, you need to divide the purchase price by the number of months in the promotional period.
Depending on the range of common promotional periods, here are some examples of what you might have to pay if you treat a 0 percent introductory APR card as an interest-free loan.
| Purchase Price | Promotion Period | Monthly payment |
|---|---|---|
| $2,000 | 10 months | $200/month |
| $2,000 | 18 months | $111.12/month |
| $2,000 | 21 months | $95.24/month |
The above example assumes that no additional charges will be made to your card beyond the initial purchase.
Typically, you need to have good credit to qualify for a 0 percent credit card.
“A good candidate is someone with a high credit score (usually 670 or above), a steady income, and the discipline to pay off their balance before the 0 percent APR period ends,” says Andrew Latham, a certified financial planner and director of content at SuperMoney.
Even if you have a 0 percent introductory APR offer, you should still pay at least the minimum payment on your card on time each month. Failure to do so could lower your credit score, incur late fees, and cause your card issuer to revoke your 0 percent APR offer (depending on the terms of your card). The monthly payments you actually owe to pay off your balance in full within the introductory APR period may be higher than the minimum monthly payment required by your card issuer.
0% Credit Card Pros and Cons
0 percent APR credit cards offer many perks and potential drawbacks when used as an interest-free loan.
“First, you can make large purchases or balance transfers interest-free during the promotional period,” Latham says. “This effectively gives you an interest-free loan for a large purchase or a grace period to pay off existing high-interest debt.”
Switching from a high-interest card to a 0 percent introductory APR card can not only save you money on interest, but it can also reduce your required minimum payments.
And because every dollar goes toward reducing your principal balance, consolidating your debt with a no-interest balance transfer credit card can help you pay off your debt faster than with a traditional card.
But it’s not free money.
“It’s easy to forget that your 0 percent APR period is ending, and when it does, you’re surprised to find that your balance is suddenly higher than it was before,” warns Joe Camberato of National Business Capital. “Some 0 percent APR credit cards also charge a higher interest rate than a regular credit card after the introductory period ends.”
0% when paying by credit card
If you need to borrow money for a large purchase that you plan to pay back within a few months, a 0 percent credit card is probably right for you.
Here are three instances when it’s worth applying for and using a 0 percent APR credit card instead of a short-term loan.
- Urgent home repairs. Let’s say you need to replace your old washer and dryer. You apply for a 0 percent APR credit card that offers 18 months of no interest introductory APR on new purchases, and put $3,600 onto the card with a $5,000 limit for your new appliances and installation. As long as you pay at least $200 per month on the card for 18 months, you’ll pay off your new washer and dryer interest-free.
- New home office. Let’s say you want to convert a spare bedroom into a work-from-home space on the cheap, but it requires repainting and buying a new desk and a new computer, which will cost you a total of $3,000. If you charge $3,000 on a 0 percent APR credit card that has a 12-month promotional APR period on new purchases, you can pay off the purchase in full by paying $250 per month for 12 months.
- Business startup. For example, let’s say you’re an entrepreneur looking to start a landscaping contracting company and you need to invest $6,000 in two riding lawn mowers. If you qualify for a 0 percent APR credit card that offers no interest for 18 months on new purchases, it would only cost you $334 per month to pay back interest-free. “This allows you to purchase the equipment you need and use your profits to pay off the balance instead of borrowing your personal funds,” says Camberat.
How to Choose the Right 0% APR Offer
Before applying for a 0 percent introductory APR credit card, consider these key features:
- The length of your referral offer. The most important factor when choosing a 0 percent APR credit card is the length of its introductory period. Often, cards offer no interest for at least 15 months, but some offer up to 21 months. This period determines how long you can go without paying interest before the regular APR kicks in.
- Qualifying Transfer or Purchase. Some 0 percent introductory APR credit cards offer no interest on purchases only, balance transfers only, or both. Also, the introductory periods for purchases and balance transfers may be different. For example, you might get 0 percent introductory APR for 12 months on purchases and 0 percent introductory APR for 18 months on balance transfers. If a card only offers a promotional rate for balance transfers, it’s not a good choice for financing a new purchase.
- The rates and fees are lower. Look for cards that offer low daily interest rates after the promotional period ends, and ideally, cards with low or no annual fees.
- Perks and rewards. Think about the long-term value of the card you’re interested in. Do the rewards align with your spending habits? If you spend a lot at supermarkets, a top-rated grocery store rewards card that offers a 0 percent APR period could help you earn rewards well into the future.
0% introductory APR card that can be used as a short-term loan
Here are four 0 percent APR credit cards worth considering as an alternative to short-term loans.
Conclusion
There are plenty of solid 0 percent APR credit cards on the market that you can use as interest-free loans, but be sure to read the card’s terms and conditions carefully to find out exactly what the introductory APR applies to and what it doesn’t, and to make sure you’ll be able to pay off the balance in full within the promotional period before applying.
BankAmericard® credit card information has been collected independently by Bankrate. Card details have not been verified or endorsed by the card issuer.
The Bank of America content in this post was last updated on September 23, 2024.
