Credit Cards with No Interest Rate: How They Work

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Updated: November 24, 2022

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You may have heard that credit cards with no interest rate are great. But what makes them so great? You won’t pay interest during an introductory period if you meet all the credit card terms and conditions. According to the CARD Act of 2009, the 0% APR offer must be applied to the account for at least six months. With some cards, the promotional period can be as long as 21 months.

During this time, you must participate in good faith. This means you must make payments on time and at least the minimum payment, among other things. Once the promotional period ends, the regular, non-promotional APR applies to your balance and future purchases.

There are two main types of offers with no interest rates. You may only have 0% APR on new purchases or 0% APR on balance transfers. Although it is rare, having a card with both is possible.

Credit Cards with Zero Interest Rate on New Purchases

If your card offers 0% APR on new purchases, no interest will apply to purchases made during the promotional period. Unless specified otherwise, interest will be applied to balance transfers and cash advances. You will still be responsible for other fees described in your credit card agreement. Once the introductory period ends, purchases made will be subject to the non-promotional interest rate. This 0% APR offer can be revoked if you break the terms and conditions of your credit card agreement.

Your payments will be handled differently with this card. If you pay only the minimum, the money will be applied to the balance with the lowest rate. Any extra funds paid over the minimum are applied to the balance with the highest interest rate. This would likely be your balance transfer and cash advances unless you have no debt from these categories.

Some credit card issuers offer deferred interest credit cards. These are not 0% APR credit cards. The main difference between them is also of the most significant consequence. A deferred interest credit card generates interest over the promotional period. This interest is added to your bill once the introductory period ends. A 0% APR card charges no interest during the same period. Therefore, there are no surprises when the promotional period has ended.

0 APR on Purchases

0% APR Credit Cards on Balance Transfers

A credit card with 0% APR on balance transfers differs from one with 0% APR on new charges. 0% APR on balance transfers means debt transferred to the new card will not be subject to interest charges. This card’s offer only applies to an introductory period, like the 0% APR purchase card. Interest will still apply to credit card advances and new purchases during the promotional period. At the end of the promotional time, a regular nonzero APR will apply to all remaining debt.

While you don’t pay interest on the debt transferred, you may have to pay a balance transfer fee. This charge is equal to 3%-5% of the total amount transferred. Careful consideration should be made when selecting a balance transfer card. Ensure this expense does not eliminate any savings you would have had from lowering your interest rate.

Aside from the balance transfer fee, many of the same credit card rules apply to both. You must still follow the credit card agreement and pay your bill on time.

Where to Find Interest Rates – Schumer Box

Verifying whether a card has a 0% interest rate promotion is easy. Under the terms and conditions, see the interest rates and charges section. This is called the Schumer Box. The first section of the Schumer Box explains a card’s interest rate and charges. It also gives details of what the APR will be for purchases, balance transfers, and cash advances.

Schumer Box Credit Card Example

Schumer Box Credit Card Example

Pay Down Your Debt with No Interest Rate Cards

Whatever your financial strategy, credit cards with no interest rate are excellent tools when necessary. They will lower your monthly payments by eliminating interest charges. When applied correctly, this will help you pay down your debt faster. Just remember to choose the promotional period that allows you to pay off your debt before the period expires.

Roman Zelvenschi

I started a digital marketing agency Romanz Media Group Inc. 12 years ago. Running my own business quickly taught me the importance of cash flow. Making sales was not enough, I had to have money in the bank to pay the vendors, staff and personal bills.

During those early stages of the company I learned how to get creative with debt and to save on interest cost. I paid for everything I could with a credit card to both get more points and to extend the payment date by 25 days (credit card grace period). I then utilized a 0% balance transfer offers to rotate this debt.

I learned a lot during this process and made a lot of mistakes. My key lesson is that the most important part of being financially independent is how much I managed to save, rather than how much I earned. Staying disciplined with savings and tracking spending is not easy and I tried many different methods to stay on track.

FinancialFreedom.Guru is a side project where I and my staff are trying to share the practical knowledge on how to understand finances and to build wealth.

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