There is much more to a 0% APR credit card than just 0% APR. And sometimes, you learn it the hard way, for example, when unexpected interest charges appear on your statement and make you wonder, “Wait, what did I sign up for?”
It’s true that 0% APR offers can save you a lot of interest when used strategically. But like all promotions, they come with certain limitations. Promotional terms generally apply only to certain types of transactions over a certain period of time. And understanding when the 0% APR applies, and when it doesn’t, can help you determine where interest charges are coming from.
Why should you have interest on a 0% APR card?
These are some of the reasons these charges could appear.
The promotion applies only to some balances. Many credit cards offer 0% APR for both purchases and balance transfers, that is, the debt was transferred to the card from another account. But some offer 0% APR only on one or the other.
“You might get that introductory interest rate only on balance transfers, just for a set period of time,” says Bruce McClary, spokesman for the National Credit Counseling Foundation. “Any other activity could earn the standard interest rate.” In his experience working with clients in credit counseling, McClary says, this aspect of 0% offers (which can be applied to one balance and not another) was more confusing for people.
In other cases, promotions may be limited to a single purchase and making additional purchases could earn interest. This is often the case deferred interest offers, which are different from the 0% APR offers and are usually found on the credit cards you sign up for in stores or doctor’s offices.
The card’s grace period is voided. If you paid your credit card balances in full the previous month, you get what’s called a grace period – you can float your purchases interest-free on your card until the expiration date.
But that grace period is usually overridden when you have a balance, even one that doesn’t earn interest. Say, for example, you have a card that offers 0% APR on balance transfers, but not purchases, and you are using the offer to pay off the debt you moved from another account. In this case, making a purchase would generally incur immediate interest charges, unless you had to pay all of your card balances in full.
A late payment raised your interest rate. Most major issuers no longer charge Penalty APR – the highest interest rate that applies when a payment is late, but some still do. If your 0% APR card comes with a penalty APR, a late payment could increase your interest rate from 0% to about 30%.
The 0% APR period has expired. 0% APR promotional periods don’t last forever. They can last between six and 21 months, and when they end, the card’s ongoing interest rate kicks in. Don’t wait for a phone call or email to alert you that they are about to expire. If you’re not sure when your 0% APR period will end, call your issuer and ask.
If you are surprised by interest charges, this is how you can respond.
Check your statement. Your credit card statement, whether on paper or online, can help you identify where interest charges are coming from.
“The periodic statement has to explain or show which APR applies to which balance,” says Nessa Feddis, senior vice president of consumer regulations and compliance solutions at the Association of American Bankers, an industry group. “In other words, balances have to show the corresponding APR, and people will be able to see that the 0% APR is applied to the balance or not.
Read the terms. If you do not remember the terms of the card you agreed to, please refer to the cardholder agreement, the detailed information booklet on the terms of your credit card that you received when you signed up. You can often find this information online. If the details are still unclear or you think there is an error on your statement, call your issuer.
Decide how to pay your balance. You may have planned to pay off your balance over time. But if you’re facing sudden interest charges, “my advice would be to just liquidate that account as quickly as possible,” says McClary. “Power-pay it.” That means paying as much as you can over the minimum payment, he says.
But if you need more time, and your credit is in good shape, there is another option, he adds: You can transfer your debt to a different card that has a 0% APR on balance transfers and pay it interest-free. This option may seem less attractive if another such offer just burned you out. But it is possible to make it work. Just make sure you fully understand the terms before applying, says McClary.
This article was written by NerdWallet and originally published by Forbes.