Choosing and using the best zero-APR introductory offers
Have you checked out the prices of appliances recently? You can easily pay more than $3,000 for a top-of-the-range refrigerator, and more than $2,000 for a matching washer and dryer. What would you do, if one of your major appliances were to be deemed economically beyond repair? Maybe you'd have no choice but to borrow the money for a replacement. Or maybe you have an emergency fund to cover such eventualities.
Either way, it's likely to cost you interest: either what you pay for the loan, or what you lose from your depleted savings account. But, providing you have good credit, there may be an alternative that could reduce or eliminate all such interest costs. You could apply for one of those credit cards that offer introductory periods of up to 18 months at zero-percent APR.
Zero APR credit cards
Look through the IndexCreditCards.com list of zero-percent intro APR credit cards, and you'll usually find some pretty amazing deals. At the time of writing, those introductory periods are lasting between six and 18 months.
The serious bit
So far, these types of cards sound wonderful. And they can be. But, like all financial products, they have to be managed responsibly. In particular:
- Don't think of a zero-APR introductory offer on purchases as the promise of "free money." Even an 18-month deal is going to end all too soon, and then standard credit card rates are going to kick in. Those can be up to 23.99 percent on these products, depending on your card and factors such as your creditworthiness. Suddenly, your cheap borrowing is looking very expensive, so be sure your balance is going to be zero when the introductory period ends. Ideally, buy just the one big-ticket item you originally planned, and pay it down in equal monthly installments over the life of the offer.
- It's bad enough normally when you're penalized for being a day late making a card payment. With one of these, such a breach of your agreement could bring the introductory offer to a premature and expensive end.
- These cards are usually available only to those with great credit scores. Some experts reckon you need one well into the 700s to be likely to qualify. Just because you've received a so-called pre-qualified offer from a card issuer, that doesn't mean you're going to get one.
- All credit applications are likely to affect your credit score and credit report. Normally, this doesn't matter too much. Someone with a high score might see a loss of a few points, and these are generally quickly restored. But, if you're planning to apply for a mortgage or auto loan, even those few points can make a big difference, because they might edge you into a different category of credit risk. And that could see you paying a higher than necessary rate on a lot of debt for years to come. So don't apply for one of these cards (or anything else) in the months running up to any serious borrowing.
None of these caveats is intended to put you off. Handled correctly, zero-APR credit cards are genuinely highly valuable, and can have a role in the financial strategies of even well-off families and individuals who would never usually dream of rolling forward a balance. But, to make the most of them, manage them prudently and carefully.
Published 02/19/14 (Modified 10/10/14)