You must have read about 0% APR on the internet. Or you must have come across advertisements by credit card companies featuring their offer. “0% APR” catches a lot of eyeballs as it sounds as if you can borrow money from a lender or credit card company – without paying any interest on the borrowed amount. So, is this what 0% APR mean? What is the credit score that you will need to have for such lucrative offers?
We’ve explained about everything that you need to know about a 0% APR offer before you can form a decision.
What does 0% APR mean?
An Annual Percentage Rate (APR) is the total interest rate that the lenders or credit providers will charge you for a year. It is way different than an interest rate. An APR includes additional charges such as loan origination fee, and processing fee while an interest rate is simply the amount that you will be charged for taking out the principal amount.
Lenders sometimes offer 0% APR offers on financial products. If you qualify for the product, you will not have to pay any interest on the amount that you will borrow. But to take advantage of this scheme, you will have to make the payments on time (without any interest) and repay the debt before the term of the deal ends.
Once the promotional period is over, interest rates will be levied on your outstanding balance.
Does 0% APR affect your credit score?
Any financial product, if not handled cautiously will impact your credit score. When you get an offer of 0% APR on a credit card, ensure that you make the repayments well within the deadline to avoid paying any extra charges.
Let us take an example to help you understand more clearly:
Suppose you came across an introductory offer of 0% APR for 6 months on a credit card. You apply for the card and your application gets approved. The card will be used for your expenses. You are expected to repay the credit card bill within 6 months. If you repay the amount used from the card within the stipulated time, then no interest charge will be levied on it. However, if you fail to repay the bill within 6 months, you will have to pay back the debt with an interest charge.
Therefore, to help protect your credit score, you will have to make all the repayments on time and in full.
What happens when a 0% APR offer ends?
When the period for 0% APR expires, you will be charged the standard APR as per the credit card company. You can find all these details in the Terms & Conditions while applying for a 0% APR credit card. Ensure that you know when the introductory or promotional period ends. Regular interest will be charged on the unpaid balance when the 0% period ends. Pay off the balance before the expiration of the offer to avoid finance charges.
0% APR offers are temporary and hence, they may not last long. Such offers are promotional financing offers. For this reason, you need to understand the deal that you are signing up for.
Is 0% APR a good deal?
Yes. Borrowing money and repaying it without any interest seems to be a good deal. These are often used for balance transfers. People who are repaying the debt on a credit card that has a very high-interest rate may find 0% APR deal good enough to help them in saving money. They transfer the unpaid balance to the 0% APR credit card and repay the debt that has been accumulated on the new card.
It is a good deal if you can afford to repay what you are borrowing. Also, you must know what transactions are exempted from 0% APR deal. It is only applied to certain transactions. Therefore, talk to the credit card company or go through the Terms & Conditions carefully before entering into the deal officially.
What credit score do you need for a 0% interest offer?
For 0% APR offers you must have an excellent credit report. If you have a stellar credit rating, credit providers may approve your application. With a low credit score, it is highly unlikely for you to get approved for a 0% APR deal.
Your creditworthiness and affordability can be assessed by the creditors through your credit report. Whether you can manage the debt or not will be decided by them after a thorough review of your report. To be on the safer side, check your credit report for any errors and get them rectified if you find any.
If you do not have a good credit score, take some time off and work on improving your score so that you can enjoy the benefits of such offers. There are a variety of things that you can do which will boost your credit score. For example, registering yourself on the electoral roll or by keeping your debt-to-income ratio low.