Credit card companies use 0 percent interest cards to attract new borrowers or get them to transfer loans or balances. But a no-interest offer is often little more than hype to attract new business, and many borrowers get caught in that net. Take a hard look at the credit agreement and compare it with your existing credit cards to see whether transferring your balance actually saves you money.
Is This Just an Introductory Offer?
Most no-interest credit card offers are good only for a short time. Once that introductory period is over, you'll pay a far higher rate for any outstanding or future balances. Before you buy into a zero-interest deal, find out how long that rate lasts. The no-interest rate is often good for six months to a year, but check your credit agreement to make sure.
What's the Real Interest Rate?
Once the introductory 0 percent rate expires, the credit card company will start charging interest just as it does with any other card. That's when you need to check your math. More than likely, the new card will go to a higher interest rate than your old credit card. While looking at the credit agreement, think about whether you'd really accept this card if the no-interest offer didn't exist.
Will a Mistake Kill the Deal?
Check your credit agreement before you sign up. If there's a "universal default" clause, stay away. Under this clause, missing a single payment or making a late payment may nullify the no-interest offer and the credit card company will start charging interest.
Is There a Balance Transfer Fee?
Even if the interest rate on the new card is free, transferring your balance to the new card may not be. Many credit card companies charge at least 3 percent of the balance to move the money over to the no-interest card. While this might still be less than what you'd pay in interest on your old card, approach this with caution.
Will You Qualify For Zero Interest?
You may not even qualify for the introductory offer. Even when recruiting new customers, credit card companies still want the best credit risks. If your credit rating is marginal, the introductory period may be shorter than advertised -- or the deal may not be available at all.
When Is a No-Interest Card a Good Deal?
If your credit card balance is relatively small, you plan to pay it off while the interest is still free and your payment history is excellent, a no-interest card might be a good way to go. But if you're going to put further purchases on the card without paying them off each month, don't even think about signing up for one.
Al Bondigas is an award-winning newspaperman who started writing professionally in 1985. His print credits include the "Mohave Valley Daily News" and "The Mohave County Standard." Bondigas studied journalism at San Bernardino Valley College in California.