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During the days when the federal bank interest rates were at its lowest, back in 2002 and 2003 to be specific, countless credit card providers offered 0% APR credit cards to many consumers. Needing only to pay the outstanding balance, smart consumers were able to charge up to their limits without incurring monthly interest charges. The question that some people were asking when these cards were at their peak of popularity was this: how do credit card providers make money off of this type of plan? Well, good question! Let's examine 0% APR credit cards and the way they really work and if they are still available to you today. You just might be surprised at the answers!
Annual Fees. Depending on the credit card provider, some card holders have been charged an annual fee for the privilege of having a 0% APR credit card. Annual fees for some of these cards generally run from $15 to $20, even higher.
Late Fees. You would think that if customers had a 0% APR credit card that they would always pay them on time, right? Well, many do not. So, every time a payment is received late credit card providers would assess a late fee. With fees ranging from $19 to $39, that can add up especially if someone is habitually late.
Default Rate. Oh, that 0% rate is nice on the surface. Read the “member's agreement” and you will quickly learn that late payments will not only incur a fee, but a “default rate” would be charged bumping up the annual percentage rate to double digit figures on existing balances as well as on new charges! If you are late you can say, “bye, bye” to your 0% APR credit card in no time.
Short Term Offer. 0% APR credit cards are still offered today. Almost always they are cards for new card holders that offer a 0% rate for a limited period of time, such as twelve months, before a higher rate kicks in, which usually is around 12%. Some cards will allow you to transfer existing credit card balances over to the new card and receive the 0% rate on transferred balances. What a great way to cut your costs and save money too!
Don't worry about credit card providers having difficulty making money even with low or 0% APR credit cards. Rates have since increased, in some cases dramatically, making it more difficult to find a low interest rate credit card. Still, great offers exist, but you must know where to find them. Searching online for your 0% APR credit card is a great way to quickly find and compare the best 0% APR offers available.
Copyright 2006 Ed Vegliante.
Not necessarily.
The 0% APR credit card, when used correctly, can help you out. It can provide you with a short, interest-free loan. It can also help you pay off other credit card balances. To make it work for you, you'll need to understand what's all involved in a 0% APR credit card.
The 0% APR Period
APR is an abbreviation for “annual percentage rate.” This is the interest rate that the credit card company charges on the balances you carry. It is expressed as a yearly rate.
The 0% APR means you will not have to pay interest on the account at first. The 0% APR usually lasts for a short time, ranging from six to twelve months. Some cards advertise a specific period, and others determine the timeframe depending on your credit score.
What the 0% APR can be used for
In most cases, the 0% APR will be applied to new purchases. In some situations, you'll find that the credit card interest rate can also be used for balance transfers. Certain credit cards even offer 0% APR on both purchases and balance transfers.
When the 0% APR applies to new purchases, you can buy items and then carry a balance for a few months. During that time, you will not be charged any interest. This gives you a small loan, free of interest. If you're planning on making a big purchase and then paying it off, the 0% APR on new purchases is a feature that lets you do just that.
For balance transfers, some cardholders find that the 0% APR period gives them a chance to pay off debt. Rather than struggling to pay the interest attached to a high balance each month, they can make payments specifically toward the principal amount. This works if you're trying to get rid of outstanding balances with high interest rates.
Other Features to Consider
While the 0% APR offer can be helpful, it does not last forever. Eventually, a regular interest rate will set in. You will then have to pay interest each month for any balance you carry. So check to see what the regular APR on the card before applying.
In addition to the 0% APR offer, most credit cards offer other benefits. They might include cash back, a rewards program, or a regular low interest rate. Be sure to look at these other benefits, as well as any other fees, before you apply.
In most cases, 0% APR credit cards really are as good as they sound. You will get an interest-free period that can help you out. Before filling out an application, however, you'll want to look at the fine print carefully, and make a decision based on all of the card's offerings. By doing that, you can be sure that the 0% APR credit card will work to your advantage.