I was chatting with a friend the other week who mentioned he was thinking about getting a credit card with an introductory 0 percent APR on purchases for over a year – to finance a couple of home improvement projects he had coming up.
Then, I got this reader question:
I have one question that I can’t seem to find a good answer for: Why pay your credit card balance in full on a 0% APR card? Can’t you treat that card as a same-as-cash card paying a designated monthly balance before the APR kicks in in 12 months?
If you have an excellent credit score and don’t mind opening a new credit card account, then, yes — using a card with an intro 0% APR is a great way to save money and enjoy the convenience of paying off your purchase over several months. Here are three of the best credit cards with 0 percent APRs on purchases. Below, we offer more of a discussion on the pros and cons of using 0% credit cards for big purchases.
The best 0% APR credit cards for purchases
The Chase Freedom card has an intro 0 percent APR on purchases for 15 months and offers a $150 cash bonus if you spend $500 on purchases in your first three months. After that the Freedom card continues to pay 1 percent cash back on every purchase plus 5 percent cash back on up to $1,500 in combined purchases in bonus categories that you activate each quarter. There’s no annual fee.
The Discover it card offers a 0 percent intro APR on purchases for 12 months and gives you 1 percent cash back on all purchases and 5 percent cash back, up to quarterly maximums, on categories that change each quarter. Another perk if you’re going to make a large purchase is that the Discover it card will double the cash back rewards that you earn in your first year. As an example, if you earn $150 cash back in your first year, you’ll get a bonus of an additional $150 for a total of $300 cash back.
The Capital One Quicksilver Cash Rewards Credit Card offers a shorter 0 percent APR on purchases than other cards here (see card details for the current intro APR length and other terms), but if you can pay off your purchase faster, you may earn more cash back with this card. There’s a cash bonus of $100 after you spend $500 on purchases within the first three months. After that, the no-annual fee Quicksilver Cash Rewards card pays 1.5 percent cash back on every purchase, every day.
The pros and cons of 0% credit cards for purchases
How 0% APR credit cards work
Credit card companies employ promotional interest rates (also called “teaser” rates or introductory rates) to attract new customers. The premise is simple: For a designated period of time (usually between 6 months and 18 months), any charges on the card will not accrue interest as long as you make timely minimum payments.
(Often, these promotional 0 percent APRs apply to balance transfers, too, but here let’s focus on using the 0 percent credit cards for new purchases).
Let’s say you charge $5,000 to a credit card with the intention of repaying the balance over a year. Ordinarily, at a 15 percent APR, you would pay $416 in interest paying the card off in 12 payments of $451.
With a 0 percent introductory APR, you could make minimum payments as low as $100 each month and not pay any interest in the first year. Of course, you would then need to have the cash to pay the entire balance before the promotional APR expires — otherwise interest would begin to accrue at the card’s regular APR.
Pros of making purchases with 0% credit cards
Played right, you could borrow the money you need for a major purchase, such as a home improvement project or vacation — and it won’t cost you a dime of interest as long as you repay the balance before the promotional interest rate expires.
Some credit cards, like the Chase Freedom Card, offer a low intro APR, cash back on your purchase and a bonus for spending a certain amount on the card in the first few months. So if you can pay off your purchase before the intro 0 percent APR expires, you’ll actually earn money by paying it off over time. Using the Chase Freedom card as an example, let’s say you get the card and make a $3,000 purchase which you then pay off before the intro 0 percent APR expires. That qualifies you for the $150 new cardmember bonus on top of the 1 percent cash back ($30) you earn with every purchase. So you just earned a “free” $180 by buying something you were going to buy anyway.
Cons of making purchases with 0% credit cards
Obviously, however, this strategy is not without risk.
There’s the chance you’ll have trouble making payments and actually not be able to pay the card off before the 0 percent period comes to an end, costing you interest after all.
And if you miss a payment — even by just a day — the bank may nullify the promotional rate.
There are also credit implications: It goes without saying that you’ll need very good credit to be approved for a new card, and adding a sizable credit card balance — even though it’s at 0 percent — will likely decrease your credit score until the balance is paid off.
Are you in a position to use these cards?
Here’s my advice on getting a zero percent credit card to finance a big-ticket purchase like furniture, an appliance, or medical bills.
If you have no other credit card debt, a solid credit score, and several months of emergency savings: Go for it, there’s little downside.
If you have no other credit card debt but are trying to improve your credit score or you don’t have much or any cash saved in the bank, think twice.
Applying for new credit and then adding to your debt load will retard any progress you’re making on improving your credit. And if you don’t have a cushion of savings in the bank, taking on debt – even at 0 percent – is a risk that I don’t recommend. If unexpected expenses come up you’ll be stuck choosing between paying the expense or making the credit card payment.
Good uses for 0% APR credit cards for purchases
Personal finance is personal, so I’m not going to judge anyone who tells me they used a 0 percent credit card for a European vacation (after all, I tend to agree that if you have the opportunity to travel while you’re young, you should take it at almost any cost). That said, there are some things that may be better going into debt for than others.
You may hear people talk about “good debt” and “bad” debt. They’ll say “good” debt includes things like a mortgage or a student loan, whereas bad debt is credit card debt or an auto loan. But that distinction is overly simplistic.
First of all, I think debt can be all bad, but even so-called good debt has its downsides. For example, I have a mortgage on my home at a very competitive interest rate, which many people would say is perfectly acceptable debt, but it’s still a financial albatross that keeps me up at night.
Second, it’s easy to imagine how a mortgage could be bad debt if you overreached to buy a property, financed 100 percent of the purchase price, and took a higher interest rate because your credit wasn’t that great. At the same time, paying with a 0 percent APR credit card for a class that lands you a raise at work would be an awfully smart way to use debt.
So if you’re thinking about using a 0 percent APR credit card for a big purchase, think about what the purchase will be.
- Is it a necessary purchase? For example, did your refrigerator die or do you just want a new fridge because you’re tired of the old one?
- Is it an investment in yourself, your career, your business, or your home?
If you can answer yes to the above, you can feel pretty good about using a 0 percent credit card as a tool for purchasing something interest-free. If not, you may want to reevaluate why you’re willing to make payments on something – even at 0 percent – that’s not entirely necessary.
Finding the best 0% APR credit cards purchases
If you have an excellent credit score you’ll have access to any number of our recommended low interest credit cards, many of which offer 0 percent APR on purchases for a year or longer.
You may want to pay attention to rewards or bonuses, but that should be secondary to how long you’ll need to repay the amount you borrow. The goal is to avoid being caught with a balance when the 0 percent APR runs out.
Again, probably the top two cards to consider for this purpose are the:
- Discover it: A 0 percent introductory APR on purchases for 12 months plus cash back rewards.
- Chase Freedom: A 0 percent introductory APR on purchases and balance transfers for 15 months, cash back, and a bonus of $150 if you spend $500 in the first three months.