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0% APR Credit Card - Shining Solution or Swallowing Swamp?

What are 0% APR Credit Cards? You may have heard the term 0 % APR Credit Cards or come across such offers from companies offering you 0% interest rate on your purchases and thought ‘Wow, what manna from heaven!’. I hope that this article answers some, if not all your queries about 0% APR Credit Cards. Caution and discretion are warranted before you start jumping with joy at the mention of the magical words ‘0% APR Credit Cards’.

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Questions that need answering - Are credit card companies doing social service? Or are they leading you on a journey called Gullible’s travels? 0% Credit Cards – honeymooner’s delight - what happens when the honeymoon is over? Forewarned is forearmed and before you cartwheel with joy and fill out the application, read this.

Let us first understand what the terminology means? 0 % APR Credit Cards. 0% does actually stand for 0%, no doubts about that. APR stands for Annual Percentage Rate, which basically is a computation of the amount of interest that your borrowings draw. It decides what money you will ultimately pay back to the credit card company. So then what’s the problem – if there is no interest, then obviously you have only the principal to pay back, right? Hallelujah!

Wrong!  No interest rates and 0% interest rates are enticements that credit card companies use to draw clients. They are the proverbial carrot that they dangle in front of you, and before you go dancing in their direction learn and understand that there is nothing in life like a free lunch. I repeat – there is nothing in life as a free lunch. 0% APR credit cards are cards that do offer you 0% interest no doubt, but only for a small period of time – only for the introductory period. Then they charge you interest rates as specified in the offer document, which you would have been wise to read carefully.

What companies count on is that you won’t read the fine print. What they count on is that you will be late in making payments. If even one payment is late then the offer of 0% interest rate is null and void. This is mentioned in the fine print, which they hope you don’t read.

Also, you must understand that while the interest rate may be zero, even for that period of time the company may be earning from you in the form of fees. Fees come in all robes and disguises, so be careful.

Things you need to look out for when considering a Zero % APR Credit Card or any other credit card for that matter:

  1. Credit limit. Greater the credit limit greater is the freedom while purchasing. You would not want to be in the check out line and find that you’ve exceeded your limit and that you have to return some stuff to the shelves.
  2. Annual fees. These vary from company to company. High annual fees would negate any advantages that the offer period brings.
  3. Penalty fees. Make one late payment and you start hurting. Be careful.
  4. Balance transfer fees Some companies waive these fees while others do not, so before you rush to consolidate your balances on one card find out whether you are charged any fee to do so. Also banks and companies often have policies on how much balance you may transfer so be aware of this.
  5. Cash advance fees. Look out and see that these are as low as possible
  6. Rewards programs offered. Companies offering rewards programs often pass on the costs to the customers as these progams need to pay for themselves. This they do so by increasing the fees. Ultimately you are going to pay, and no one does you a favor, so check all the details carefully.
  7. Grace Period. The shorter the grace period the quicker you need to make your payments. One default there, and the 0% APR no longer applies.
  8. Introductory period. Generally this period varies from 6 to 24 months. Longer the offer period, better it is for you.
  9. Is the 0 APR applicable to balance transfers? A very important thing to make sure is that the 0% APR does apply to your balance transfer. Very often the fine print clauses that the 0% APR does not apply to balance transfers. Even if the 0 % rates are applied to balance transfers, be sure that you are in a position to clear those balances before the offer period expires like I mention below
  10. APR interest once the introductory period is over. If you get carried away with the zero percent offer then you may find that you often have to pay more in the greed of paying less If you do go in for a 0 APR card then see that you are able to clear of your consolidated balance transfers before this period expires, because after this regular APR rates as mentioned in the offer document apply. If the interest rate after the honeymoon period is over is higher then the one offered by your current card, then it would be foolhardy to switch cards if you do not clear your consolidated balances before the offer expires. In that sense it would be foolhardy in all ways, as higher long term interest gives more pain than any pleasure the short term 0% brings.
  11. Qualifying Criteria. Only if your credit is very good would you qualify for 0% APR Cards. Sometimes companies employ a sleight of hand trick of sorts which may mislead you if you are not careful. They send you a card that is not the one offered and the Zero APR is not applicable on this card at all. Of course the fine print states that they can do this if you do not qualify for the 0% APR Credit Card.
  12. Hidden clauses: Be aware of hidden clauses that allow the companies to change the conditions without notifications, though this does not generally happen, it is always prudent to keep your eyes wide open.

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So what to do? How does one take advantage of 0% APR Credit Cards that is if there is any advantage at all?

Zero APR cards are helpful if you have a large purchase that you want to clear off without paying interest. Just be sure that you are actually capable of doing so within the offer period. After that you could always jump cards to avoid large annual fees that you may have to pay if you want to retain the card. Just be sure that there isn’t some clause that prevents you from canceling your card before a specified period of time, though I don’t really think that it would be legal for a company to prevent you from canceling a card if you don’t want it any longer.

This article was written with the hope that you would think carefully before jumping cards with every shiner offered. For purchases they say Caveat Emptor – buyer beware. In this case let it be known that even before you buy, there is a Shylock waiting in the wings, waiting to extract his pound of flesh if you are not careful.

Take care.

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