No Interest Credit Card

The appeal of a no interest credit card can blind an applicant to the fine print that provides the important details of the issuing bank's terms and conditions. But the details of the fine print provide the applicant with important information about the potential pitfalls of a zero interest offer. No matter how tempting an offer may look or how many benefits are promised, the wise applicant will grab a magnifying class and turn that fine print into easy-to-read text. Of course, whether or not it will be easy to understand is another thing altogether. No matter how confusing the explanations of annual percentage rates and grace periods and interest calculations get, an applicant should pay very special attention to the rules for keeping a no interest credit card exactly that. Otherwise, the applicant-turned-cardholder may find that missing a payment, or some other transgression of the terms, turns that zero into a double-digit rate and greatly increases the monthly payment.

Many companies offer a no interest credit card to people who have high balances on other accounts. Someone who is paying a high rate on a balance may benefit from transferring that balance to a new card with a zero rate. However, the issuing bank will almost certainly charge a balance transfer fee equal to some percentage of the amount being transferred. For example, let's say an individual wants to transfer a balance of $3,000 from an old account to a new one to take advantage of a zero rate offer. He looks at the promotional material and sees that the balance transfer fee is three percent with a cap of $100. That sounds like a pretty low number, doesn't it? But do the math. The individual will be paying $90 for the privilege of giving his business to a different issuer, only $10 less than the cap. Depending on what the monthly interest charges are on the current account, making the transfer to a no interest credit card may or may not be a prudent decision. That is why it's absolutely essential to read through the agreement and to understand the percentages. As the writer of Proverbs advised: "The simple believeth every word: but the prudent man looketh well to his going" (Proverbs 14:15).

A balance transfer fee is not the only concern with a no interest credit card offer. The zero rate will almost certainly be valid for only a specific period of time. This may be only a few months or perhaps over a year depending on the promotion. But the zero rate may disappear if certain conditions aren't met. For example, if a payment arrives even one day past the due date, it will be considered a late payment and may trigger a different interest rate. Or the cardholder may exceed the card's credit limit and that may trigger an end to the promotional zero rate. The new rate may be much higher than what the individual could have received with from a different issuer.

The applicant needs to look beyond the no interest credit card promotion to the future annual percentage rates unless she knows, beyond any shadow of a doubt, that she will be able to pay off the entire balance before the promotional zero rate comes to an end. If she knows that paying off the balance isn't likely, she needs to be well-acquainted with how the issuing bank calculates finance charges. Credit cards have an amazing number of annual percentage rates even for the same account. There are, for example, fixed APRs (which aren't really fixed), variable APRs, and a host of others known as introductory, delayed, penalty, and tiered. The first distinction is between annual percentage rates that are fixed or variable. In the fine print of a bank's terms and conditions will be language that allows the institution to change rates at their discretion even though a fixed rate should be more or less consistent. A variable APR is tied to an index, such as the prime rate or Treasury bill rate plus an additional number of percentage points. For example, the variable may be defined as the prime rate plus eight percent. As the prime goes up and down, so does the variable APR.

A promotional no interest credit card should include information about the introductory, delayed, and penalty rates. The introductory rate in this case is zero for a specific period of time. The delayed rate is the new APR once the introductory period ends. The penalty kicks in when the cardholder breaks a condition, such as a late payment or exceeding the credit limit as discussed above. The tiered APR applies to different balances. For example, the rate may be 14% for balances up to $1500 and 12% for balances between $1501 and $3000. This is all important information that the financially savvy consumer needs to know before responding to a zero rate offer. The enticing promotions are going to use persuasive language to encourage consumers to apply for a no interest credit card. The promotional packet may include convenience checks so that the consumer can pay off a higher balance or even make a deposit into her checking account. But the convenience will come with a price, either in the form of a balance transfer or cash advance fee. It can't be said often enough. Know the terms and conditions before applying for any credit card, no matter how attractive and tempting its offer.

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