Carrying a high balance on a 0 percent intro APR card might cause short-term damage to your credit score — but carrying those balances after the introductory APR expires could create a long-term problem.
No, transferring your balance to a 0% card is a great idea with several benefits. The money you'll save in interest and it will allow you to pay that debt off faster and it will increase your available credit/reduce your credit utilization.
A 0% APR credit card is a credit card that charges no interest on qualifying purchases, balance transfers or both for a fixed amount of time. This no-interest period is called a promotional period. If the promotional period is based on opening a new account, it may be referred to as an introductory period.
When your intro APR ends, your credit card's regular APR will kick in on any remaining and new balances. Knowing when your promotional period ends helps you pay off your balance beforehand and keeps you from being surprised by mounting interest on a residual balance.
Having 0% financing on a car loan means you pay no interest to the lender on the money borrowed to buy the car. In other words, a 0% APR car loan is an opportunity to pay the same amount of money as a cash buyer, even though you're spreading your payments over a longer term.
Technically, yes, you can move a balance to a new card and then repeat the process over and over again — but that's not feasible in the long run. As mentioned previously, you'll have to pay a balance transfer fee each time you make a transfer.
Your 0% APR deal could be canceled
Even with a 0% APR card, you'll still have to make monthly minimum payments — usually a small percentage of your balance. And if your payment is late, even by a single day, your card issuer could cancel the 0% offer and reset your card's interest rate to the ongoing APR.
Avoiding interest is always a good goal, but zero-interest loans can lead buyers to overspend and come with a lot of strings attached. Carefully evaluate your purchase—is this what you intended to buy, and will you realistically pay off the loan within the given time?
How does a balance transfer work? A balance transfer lets you move the unpaid balance from one or more credit cards to a new credit card by using paper checks, online banking or even a mobile app to pay those outstanding balances.
With a 0% balance transfer you get a new card to pay off debt on old credit and store cards, so you owe it instead, but at 0% interest. A card will have a 0% period, during which you pay no interest – for example, 28 months – and sometimes you'll pay a small fee.
Many issuers are generous, giving cardholders the ability to transfer their full credit limit, but in some cases, your transfer limit may be capped at 75 percent of your overall credit limit. Some card issuers also have internal rules for balance transfers.
If you're disciplined to make on-time payments and pay off your balance before the intro period ends, then you will likely do well with a 0% APR credit card. However, if the 0% tempts you to overspend, you may face paying high interest charges if you're still carrying a balance after the intro period.
A 0 percent introductory APR doesn't mean you should leave a balance on your card until the promotional period is up. For one thing, that isn't a great way to maximize the interest-free period. Furthermore, you're still required to make the minimum payments each billing cycle, even during an interest-free promo period.
The introductory APR offer won't last forever
It is important to remember that 0 percent intro APR offers typically expire 12 to 21 months after opening the card. That provides a limited window of time in which to benefit, but it can also provide a false sense of security.
How Can Carrying a Balance Hurt Your Credit? Amounts owed is one of the most important factors that affect your credit score, second only to your payment history. "The higher the balance, the greater the sign of risk," Griffin says. "High balances are a strong indicator of risk that will drag down your credit scores."
You'd save money on interest
If you paid $200 per month on such a card, you could become debt-free in 20 months with $0 in interest paid.
Zero interest car loans usually come with a higher price tag, expensive extras and strict repayment terms. If you miss even one payment, you lose your 0% interest rate and get charged late fees.
What is wrong with a zero interest rate? Doesn't it boost investment, growth, and employment? There are numerous things wrong with a zero interest rate such as less return on past savings, poor investments, negative returns, and uneconomic growth.
It Could Affect Your Utilization Rate
However, if you have a 0% APR offer on a credit card, you may be more inclined to let your balance grow. Your utilization rate will then increase, which might hurt your scores. In general, aim to keep your utilization rate under 30% to avoid negatively affecting your scores.
A 0 percent APR or interest-free auto deal essentially means you borrow money for free. Your monthly payments reimburse the lender for the money it paid the auto dealer, but no extra money from your pocket goes into the lender's bank account.
0% intro APR cards require good to excellent credit
This means you'll need a FICO credit score of at least 670 or a VantageScore credit score of at least 661. If you have very good or excellent credit, which means a FICO score of at least 740 or a VantageScore of at least 781, your chances of approval are even higher.
Bottom line. You can keep transferring credit card balances to take advantage of 0% intro APR offers as long as you continue to qualify for new balance transfer cards. It can be an effective way to pay down your credit card balance without your money going toward interest.
Owning more than two or three credit cards can become unmanageable for many people. However, your credit needs and financial situation are unique, so there's no hard and fast rule about how many credit cards are too many. The important thing is to make sure that you use your credit cards responsibly.
In some cases, a balance transfer can positively impact your credit scores and help you pay less interest on your debts in the long run. However, repeatedly opening new credit cards and transferring balances to them can damage your credit scores in the long run.