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If you have a credit card with a 0% APR introductory offer, you know how valuable it can be. One important thing you need to be aware of, though, is that the end of the intro period usually brings with it a big change to the card's interest rate.
Introductory periods typically offer cardholders a 0% APR (annual percentage rate) for a set period of time. Depending on the card, this special interest rate will apply to purchases, transferred balances or both. Once this period is over, you'll be charged a new interest rate and will owe interest on any unpaid balance on the card.
Card issuers offer these promotional rates to encourage new card signups. They provide a great benefit to start, but it's important to do your homework if you plan on keeping the card long term. Read on for tips on what to do when an introductory period ends.
Do Interest Rates Change After an Introductory Period?
Introductory offers—as the name implies—are special terms offered to new cardholders and can last anywhere from six to 21 months. Once a card's introductory period is over, the standard interest rates that appear in your cardholder agreement are applied to the account.
Cards have several APRs, but there are two you'll want to pay close attention to as your intro period comes to an end: the interest rate for purchases and the interest rate for balance transfers. The introductory periods for new purchases and balance transfers can vary (some cards offer 0% APR for both new purchases and balance transfers, while some don't), and the ongoing rates charged once interest kicks in may also vary.
- APRs for purchases: This APR applies to the day-to-day purchases you make with the card. Once an introductory APR for purchases ends, the portion of your balance that comes from new purchases will be assigned a new APR and start to accrue interest at that rate. The specific rate you'll be charged will depend on your creditworthiness, and will be assigned when you're approved for your card.
- APRs for balance transfers: This APR applies to debt you transfer to the card from other credit cards. It can allow you to avoid paying interest for, say, six to 12 months, but may only apply to balance transfers made during the first few months you have the card. Once a promotional balance transfer APR expires, a new APR will be assigned to any remaining balance. That means if you transferred a total of $5,000 and paid off $3,000 during the introductory period, you will begin paying an assigned balance transfer interest rate on the remaining $2,000 once the intro period is over.
While it's best to pay off your entire balance before the intro period ends—thus paying no interest on the transferred balances and any eligible purchases—that might not be possible. For that reason, it's important to keep track of your card balances, the date your promotional offer ends, and what APR(s) will apply to your balance at that time.
What Happens if I Have a Balance Left Over After the Intro Period?
Most people who apply for a 0% intro offer card do so to avoid the cost of paying interest on their debt. To save the most on interest, make it a goal to have your balance completely paid off before interest kicks in. You should be making at least your minimum payment during the promotional period to avoid late payments.
If you're approaching the end of your introductory period and still haven't paid off your balance, you might be wondering what you should do. Here are a few options you can consider:
- Transfer the balance again. If you still owe a substantial amount and want to avoid paying interest on your balance, consider transferring your remaining debt to a new card (preferably another one with a 0% APR offer). To do this, you'll have to apply and be approved for another card with a special intro offer. If you get approved, doing this will enable you to continue paying down your balance with 0% interest.
- Make a lump sum payment on the leftover balance before the intro period ends. If you really want to avoid paying interest, use your savings or any extra cash you may have to pay off the remaining balance before the intro period is over. This option will help you save money in the long run.
- Leave the balance on the card and pay interest. If you don't want to apply for another card and can't pay the balance in full, you always have the option of leaving the balance on your card and paying the new interest as it accrues. With this option, consider paying as much as you can toward the debt each month so you pay less in interest over time.
Should I Keep My Card Open After Paying my Balance?
If you applied for this card solely for the introductory offer, you may be considering closing it now that you've paid off your balance—but think twice before doing so. It's often wise to keep a credit card account open unless you can't afford the annual fee. Closing a card has the potential to hurt your credit score if it causes your credit utilization ratio to rise. If there's no fee associated with the card, you're usually better off leaving the card at home and just not using it.
Check to see if your card has additional perks or bonus features outside of the promotional APR. Some cards offer things like purchase protection, rewards, cash back, insurance on rental vehicles and more. If your card offers anything like this, keeping it around and using it on specific purchases can be a smart move. Be sure to consider all aspects of your card, in addition to the promotional period, when deciding whether to keep the card in your wallet.
Three Tips to Maximize Your 0% APR Card
If you've recently applied for a credit card with a 0% promotional period, or you're considering it, here are three tips that can help you maximize the card's value.
1. Find the Card With the Longest Intro Period
The longer the intro period, the more money you can save on interest and the smaller your monthly payments will have to be to avoid it altogether. The length of introductory offers will vary—some can last for 12 months and others up to 21 —so make sure you find the card with the longest intro period if you feel you need the extra time. If you are transferring a balance, do a quick estimation of how many months you'll need to pay down the card. Knowing this ahead of time will help you choose a card that is right for you.
2. Develop an Aggressive Payment Plan
You'll want to take advantage of the 0% introductory APR for as long as you have it. If you transfer a balance from another card, or rack up a substantial amount in new purchases, developing an aggressive repayment strategy can help ensure that you don't end up paying interest on any of that debt. If possible, aim to pay off your balance before the intro period ends to avoid the interest cost.
3. Know the Fees and APRs Associated With Your Card
If you read the fine print on your card agreement, you may find that there are certain fees associated with your account. When researching a new card, look out for things like annual fees and late payment penalties. If you're planning to transfer a balance, also check what the balance transfer fee is, as those can range anywhere from 3% to 5% of the transferred amount. While you won't necessarily have to pay each fee—late fees are only charged if you miss a payment, for instance—you'll want to know what they all are so you can avoid them.
Another important fee to be aware of is the penalty APR. This is a special interest rate some credit cards will apply to balances once you miss a payment. Missed payments could cause you to lose your promotional 0% interest rate and trigger a new, higher penalty APR to kick in. Though you should always strive to make all payments on time, check with your creditor to see what would happen if you missed a payment—just so you can be prepared should something unfortunate happen.
Find the Right Card for Your Financial Goals
If you're planning to apply for a card with an introductory 0% APR, make sure to thoroughly research what's available so you can get one that works for your personal financial goals. You may prefer one with a reward earning potential, a long intro period or one that charges little or no fees.
One card to consider is the Citi Rewards+® Card from our partner. The Citi Rewards+® Card offers 0% intro APR on purchases and balance transfers for 15 months. After the intro period, the card's APR on new purchases and existing balances will climb to 13.49% to 23.49% (Variable) depending on your creditworthiness. You'll pay a 3% fee (minimum $5) for balance transfers, but no annual fee. Rewards-seekers will like that the card gives you 2 points per dollar spent at supermarkets and gas stations on the first $6,000 in purchases every calendar year, as well as 1 point per dollar spent almost everywhere else.
If you're looking for a card with an extended intro period on balance transfers, the Citi® Diamond Preferred® Card offers 0% intro APR on purchases and balance transfers for 18 months until the ongoing APR of 14.74% to 24.74% (Variable) kicks in. The balance transfer fee is 3% (minimum $5).
As always, if you're thinking about applying for a new credit card, try to keep a close eye on credit reports and scores so you can understand what a lender will see when considering your application, and if anything changes before you submit your application. You can sign up for free credit monitoring through Experian.