An introductory APR is a low promotional interest rate that credit card companies often give new customers for a set number of months after they open an account. Some credit cards offer introductory APRs on purchases, balance transfers or both.
Some credit cards come with extremely low, or even non-existent, APRs for a limited period of time. Although the introductory rates will eventually expire, you can come out ahead financially when you get the right account – and use it wisely.
Here’s how 0 percent APRs work and what you should know before applying.
A 6-step guide to introductory APRs
See related: How does credit card APR work?
What is a credit card introductory rate?
Credit card issuers set a variety of interest rates on their products. For example, there may be a higher rate for cash advances than there is for purchases, and a penalty rate if you let the account become delinquent. It may also have an introductory rate, which is an ultra-low, temporary APR.
The introductory rate can be just a few percentage points or even 0%, and it typically lasts between six and 18 months – though some offers are even longer. These deals are typically offered on newly issued credit cards, so they won’t be available on an account you already have.
Depending on the credit card, you can have an introductory APR for purchases, balance transfers or both. In any case, while the introductory rate is in effect, you’ll be charged little or no interest on the balance. Once the introductory period is over, you’ll be charged the regular rate.
How does the introductory period work?
The introductory period begins as soon as the account is granted. This means if it comes with a 0% APR for six months and the credit card was issued to you on Jan. 1, you have until July 1 to pay off the debt or make charges without adding any financing fees.
This doesn’t mean the introductory rate is guaranteed for the advertised months, however. As a cardholder, you are obligated to treat the account according to the rules set forth by the issuer. That means sending in at least the minimum payments by the due date. If you don’t, the deal will be void and the issuer would then charge you the highest APR.
Benefits of the 0% intro period
The most obvious advantage of an introductory interest rate – especially when it is 0% – is the money it will save you in interest costs.
For example, if you transfer a $6,000 balance from a credit card with a 22% APR to a 0% APR card with a 12-month introductory period (plus an estimated 3% balance transfer fee of $180), the total interest saved would be $760. Subtract the $180 fee and your savings would be $580.
Super-low APR balance transfer deals can be used to get out of debt strategically. For example, retiree Laura Clifford paid down $15,000 efficiently with multiple offers.
“I transferred my high-interest debt to cards with zero interest that lasted six months,” Clifford said. “Then at five months, I would just find another credit card with 0% and move it to that. It was very easy to do because I had and have a good credit rating. I don’t know exactly how much I saved but I’m sure it was thousands of dollars, as interest rates at the time were pretty high.”
Leverage cash flow
You can also open a new credit card and charge a purchase with no interest added and save money by paying off that purchase within the introductory period.
Let’s say you charged $6,000 to a 0% APR card with a 12-month introductory period and made monthly payments of $500. It wouldn’t cost you a penny in fees if you paid it off within the year. But if your card has a 22% APR and you sent those same payments, the interest would total $839 – and it would take you an extra two months to be in the clear.
In fact, using a credit card issuer’s funds interest-free can help you leverage your personal cash flow, which is what Julie Gordon, founder of Inspiring Kitchen, did for her kitchen remodel.
“I was offered 0% for 12 months,” Gordon said. “Essentially, it saved me from not having to pull all that money out of savings at once. I had a year to make payments of whatever amount I wanted, knowing that at the 12th month, I would pay off the balance so there were no interest charges.”
Cash back and rewards
An additional advantage is getting an introductory rate card that also has a sign-up bonus. Some issuers give you a certain amount of cash back after spending a fixed amount within a few months of opening an account.
For example, the Bank of America® Customized Cash Rewards credit card offers a $200 sign-up bonus after you spend $1,000 in the first 90 days. It also comes with a 0% intro APR for 15 billing cycles for purchases, and for any balance transfers made in the first 60 days (13.99% to 23.99% variable APR thereafter). A 3% fee (minimum $10) applies to all balance transfers.
Other cards offer sign-up bonuses in the form of points or miles. With the Capital One VentureOne Rewards Credit Card, for instance, you can earn 20,000 miles (worth up to $200 in travel purchases) after spending $500 in the first three months of opening the account. And the card comes with a 0% introductory purchase APR for 12 months (14.99% to 24.99% variable APR thereafter).
What to consider before accepting a 0% intro APR offer
There are many factors to weigh before applying for a credit card with an introductory rate – see below for things to consider.
- Your credit rating: Great offers require good to excellent credit scores, which are typically from 670 to 850. Know what yours are before applying. You don’t want to try for a card only to get rejected, because the hard inquiry may shave some points off your credit scores.
- Duration of the offer: The longer you have to repay the debt, whether it’s a balance transfer or for purchases, the better. Timeframes vary dramatically, and can even be different for the same card, depending on what you use it for.
- Credit card type: The card you pursue should not just be good for the introductory rate deal, it should match your long-term needs and lifestyle. One that allows you to accumulate miles or points is best for people who like to travel, while a cash back card is attractive for general purpose use.
- Regular APR: Eventually the credit card’s introductory interest rate will rise to its regular rate, so bear that in mind. For example, the Capital One Quicksilver Cash Rewards Credit Card offers 0% intro APR on purchases for 15 months, then the rate jumps to 14.99% to 24.99% variable. Good APRs are available to people who’ve proved themselves to be low-risk cardholders. To be perceived as such, make your payments on time and keep your balances low.
- Other fees: Look beyond the short-term interest rate benefit, as other fees may be tacked on. If the account has an annual fee, the perks should outweigh that cost. Balance transfer fees are typically 3% to 5%, so identify the lowest you can get. Traveling out of the country? Look for a card with no foreign transaction fees.
The difference between a 0% intro period and deferred interest
Deferred interest credit cards bear some similarities to introductory 0% APR credit cards, but they’re not as advantageous. Interest isn’t added to a balance during the promotional time period with a deferred interest arrangement, but you have to pay the balance in full before the deal expires.
If you don’t, and there’s a debt left over, all of the interest you’ve accrued will be added to the balance. So, if you charged $5,000 and have $1,000 remaining, interest will be calculated on the $5,000 and added to what you owe.
Conversely, with an introductory rate credit card, any balance you have left over after the promotional period ends is subject to the real rate of interest, but you won’t be charged for anything that preceded it.
That means if you charged $5,000 and still owe $1,000 when the introductory rate ends, interest will be applied to that debt only. The $4,000 you already satisfied was an interest-free loan.
Clearly, deferred interest credit cards are riskier than those offering introductory rate APRs. But in both cases, it’s important to manage your financial affairs so you’re out of debt before interest kicks in.
Manage your introductory rate account carefully
According to credit card expert Jason Steele, 0% introductory APR cards are ideal for one-time, big-ticket items – not when you can’t afford to meet your expenses.
“They’re great for things like paying for your kids’ summer camp, a car repair or a large medical bill,” Steele said.
Prior to charging with or adding a balance to an introductory rate card, figure out how you will repay the debt within the set time frame. You don’t want to be stuck with a debt with a high rate of interest.
The calculation for a fixed amount that you charge is simple: Divide the balance by the number of months you have to pay with no interest added. That will be your minimum monthly payment. You may have to work some numbers around in your budget to make it happen, but with a well-constructed repayment plan, you can do it.
You will want to keep your credit rating high, too, so if you want to take advantage of such helpful credit products again, you can.
“Be careful about the high level of debt you can get into with introductory rate cards,” Steele advised. “Even if you make your payments on time, if your balances are close to the limit, it will affect your credit in a negative way.”
In short, just because you can spread out high debt to the last minute before the true rate kicks in, it doesn’t mean you should, especially if it appears that you’re overextended.