The average interest rate on credit cards is an astounding 19.24 percent, and that’s if you have a good credit score. If your credit score is less than perfect, look for interest rates of 30% or more. No-interest credit cards are a great alternative to these typical cards.
What is a No-Interest Credit Card?
No-interest credit cards, or 0 apr credit cards, offer no interest charges on purchases and balance transfers. The average no-interest credit card offers this benefit for a pre-determined amount of time. It’s usually between six and eighteen months, but some cards may offer the benefit even longer.
No-interest credit cards are popular choices for unexpected larger purchases. Some cards are specific for certain things, such as medical or home improvement needs. Other cards can be used for all purchases.
Interest-free credit cards let you make purchases of up to several thousand dollars. A personal loan or a payday loan can be used for purchases, but these come with high-interest rates. Additionally, 0 apr credit cards give immediate access to funds without the paperwork of a traditional loan.
No-interest credit cards are great for debt consolidation. Many people use no-interest cards to pay off higher interest cards. They roll many large monthly payments into one affordable payment each month.
An interest-free credit card offers a much higher credit line than traditional cards. These no-interest cards are inviting ways for consumers to consolidate their debt into a manageable payment. These cards are fantastic for limited expenses, like a spontaneous weekend getaway or larger purchases.
Home improvement financing contracts or loans charge high-interest rates. Painting services or minor remodeling jobs are ideal purchases to put on a no-interest card. Make sure to pay more than the minimum balance due each month.
Risks of Using No-Interest Credit Cards
There is a reason that these cards encourage people to transfer balances. They offer high credit limits and great terms to entice consumers. How does this benefit the credit card companies?
Consumers Don’t Know That They Must Pay More than Minimum Payments Each Month
These cards gamble that a customer won’t pay the entire balance within the introductory period.
Your credit card statement includes only the minimum balance due. Paying the minimum payment each month doesn’t pay off the balance in time. Credit card companies hope you don’t understand the penalty for these balances.
If you don’t pay off the outstanding balances in this time frame, you will pay interest on the entire balance. This accrued interest covers the entire balance from the time of the purchase.
To make sure you don’t fall into this trap, take the balance of your card and divide it by the interest-free months you were offered. This is the amount you must pay each month to avoid paying unexpected interest accruals at the end of the term. Never pay the minimum due on these cards.
Always Read the Fine Print of Your Offer
Even though these are the best credit cards you can have, it’s important that you read the fine print.
- How long does the introductory term last?
- What happens after the introductory term passes?
- How high is the interest rate for purchases after the introductory term is over?
- Are the zero-interest terms for balance transfers only, or for purchases as well?
- Are cash advances covered under the zero-interest terms?
Knowing the fine print of your zero-interest credit card terms will save you a lot of surprises.
Fees for Balance Transfers
0 apr credit cards will charge fees for each balance you transfer. These fees average around 3% of each individual transfer. Some cards may charge a flat rate dollar fee for each transfer.
Shop around for the best fees on balance transfers to save yourself money in the long run. Despite these fees, these cards are an effective way to lower your payments.
Late Payments may Cancel Your Zero-Interest Terms
If you aren’t on time for each payment, it could hurt your terms. Most cards hope you pay late so they can cancel your terms and charge you accrued interest on your balances. You need to make it a priority to make payments on time to follow these requirements.
A High Credit Score is Needed for No-Interest Cards
While almost any credit card requires a high credit score, a zero-interest card is even pickier. Some of these cards may ask for scores 700 and above. The average credit score is between 620 and 679.
You will probably need to get a secured credit card if you are starting out. A secured credit card asks for a deposit by the cardholder. The amount of credit you qualify for depends on the amount of your deposit and your credit score.
A poor or nonexistent credit history limits your credit card options to those that have fees. These cards will have very high-interest rates as well. Once you get a good history under your belt, you can cancel these cards for those with more favorable terms.
Creditors like to see a good mix of revolving debts, like credit cards, and other debts such as loans or financing.
The good news is that it doesn’t take long to build up a good score. You establish a good credit score by paying your bills on time and keeping your balances low. Once you raise your scores, you can apply for zero-interest cards.
If you know your credit score, read about what cards you qualify for right now. Credit cards are the most important way to boost your credit. If you have no debt and do not use credit cards, it will still count against your credit score.
No-Interest Credit Cards are Valuable Tools
No-interest credit cards can be a valuable tool in your credit building arsenal. They are great ways to consolidate higher interest cards into affordable monthly payments.
Zero-interest credit cards are a great way to pay for higher budget items. Use them for purchases like home improvements or finally booking that perfect trip. If you are looking for your ideal getaway, check out these ideas for traveling on a budget.