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The Real Deal Behind the Interest Free Credit Cards

Credit card companies and banks are always advertising offers of zero percent or interest free credit cards. The offer of an interest free credit card makes us want to take a step back and see if everything about it is as good as it really says.

Interest free credit cards were unheard off until the 80’s. It was only in the 1980’s when interest free credit cards first started being offered. There is really no interest free credit card, at least interest free forever. All the credit cards that have a 0% interest only offer that for an introductory period. This introductory period typically lasts from 3-6 months although some have been known to get it for 12 months. Do not let the commercials, mail ads or other advertisements fool you as they always say “UPTO” which means it is at the discretion of the credit card company to determine how long it is interest-free. And the worst part is, you do not know how long the 0% APR holds up till you complete an application and are approved for a credit card?which means that you are already getting that credit card, even if you do not want it anymore as they are offering you only 3 months of 0% APR.

It is very important to read the agreement when getting the 0% APR credit cards. Credit card companies have been known to put a lot of hidden fees behind these transactions. In addition, they will have clauses (one too many) that if violated, your interest rate immediately switches to the highest possible APR. Some of the things to watch out for are:

1. Does the 0% APR apply to purchases only or does it also apply to balance transfers? If you plan on transferring balances from other credit cards, this is very important for you.

2. What are the fees charged for transferring balances? Most companies charge a % of the transaction i.e. % of the balance transferred with a minimum.

3. Are there any penalties for not paying off the balance transfer amount once the introductory period is over?

4. Once the introductory period is over and you decide to get a new credit card with another 0% introductory APR, does this credit card company charge you any fees for paying off the balance?

5. What is the regular APR i.e. interest rate once the introductory period is over? This is very important if you plan to keep the card for a long time.

6. Are there any monthly or yearly fees on the credit card? Usually these fees are nominal but it is something that you should consider when getting a credit card.

7. Read and understand the clauses in the agreement. Credit card companies are known to cancel the introductory offer if you are late in your payment even by a day. There are other such clauses that you should be familiar with.

8. Calculate your minimum payment and monthly payment that you will be required to pay after the introductory period as it directly affects your finances.

9. Set a reminder in your calendar (whether on Outlook or on the fridge) for the expiration of the 0% APR. You should try to pay off all balances before you are switched to a higher interest rate.

As always, it is very important to pick the right credit card and also use the credit card wisely. Always live within your means and use the credit card as a shopping convenience rather than as “new money found”.

0% APR cards are definitely useful for a short-term credit crunch, when you need to consolidate your higher interest rate balances or reduce your monthly payments. Always, understand the hidden terms and conditions and make a wise decision.

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