Pros and Cons of No Interest Credit Cards

No-interest credit cards sound like the perfect financial tool. You can use one to buy that expensive kitchen appliance you’ve had your eye on for a while or free yourself from high-interest charges on your overall debt. However, you should always proceed with caution when an offer sounds too good to be true. That’s why we’re going to lay out all the pros and cons of these types of credit cards and give you the information you need to make the right decision.

Pros of a 0% Interest Credit Card

There are several key advantages to using credit cards with a zero-interest period. Here is a closer look at that list:

No interest: It goes without saying that the main benefit of these credit cards is the fact that, for a certain amount of time, they require no interest payments. If you plan your budget right, you could, for instance, purchase an expensive desktop computer with this credit card and pay down the balance before the card issuer begins charging you interest.

Debt relief: You can use no-interest credit cards to deal with a large debt that you’ve accumulated on a different card. By transferring the debt to a zero-interest card, you can pay the new card’s balance without having to worry about interest for a while. There are even cards specifically designed for balance transfers. 

Introductory bonuses: Many credit card issuers offer sign-up bonuses. These include frequent flyer miles, grocery shopping points, and cash. But keep in mind that you’ll usually have to meet certain requirements before you’re able to claim the gifts.

Reasonable credit score requirements: To qualify for zero-interest credit cards, you’ll typically need a FICO score of at least 670. Considering that the FICO credit score range is between 300 and 800, 670 is a fair condition. What’s more, FICO’s own analysis shows that the average score of US citizens in July 2020 was 711.

Additional rewards: In addition to 0% interest and new-customer bonuses, some cards also come with regular cashback, discounts, loyalty programs, and more. Of course, these rewards are meant to get you to use the card as often as possible, which brings us to the next segment of our article.

Cons of a 0% Interest Credit Card

All good things must come to an end, and in this case, that means having to go back to paying interest and sometimes being required to cover additional costs. Here are the drawbacks of credit cards that don’t have interest rates.

Temporary: Unfortunately, the no-interest period doesn’t last forever. Usually, it’s only six months long, but there are some cards that will keep you interest-free for up to 18 months.

An even higher interest rate: We talked about no-interest credit cards being a great tool for managing debt through well-thought-out balance transfers. However, if you are unable to pay off the debt during the zero-interest period, you could potentially end up with an even higher rate than the one you had before.

Unfortunately, that’s not all. Once the introductory period is over, some credit card issuers begin charging interest on the entire principal and not just the remaining balance.

Fees: If you’ve ever owned a credit card before, you know that they come with fees – credit cards with no interest are no different. These will vary from company to company, but the most common ones are monthly maintenance, annual, late payment, and balance transfer fees.

Hidden conditions: You might not be aware of this, but sometimes the interest-free period doesn’t apply to all transactions that you make with your card. Quite often, only new purchases and balance transfers are covered by the deal.

You should also watch out for a clause that enables your credit card issuer to end the introductory zero percent rate if even one of your payments is late. That’s why you should never accept any credit card offers without reading the fine print first.

Negative credit score impact: Switching from one no-interest credit card to another will almost certainly cause your credit score to go down. The obvious solution would be to simply not open any new cards of this kind. But after they fail to get rid of debt the first time around, people tend to have a hard time resisting the urge to try the entire balance transfer process again.

This is the worst thing that you can do since credit bureaus register opening credit cards frequently as a sign of financial instability. On top of that, closing cards can result in even more damage to your credit score.

Unknown transfer limit: When applying for interest-free credit cards, you’ll typically be allowed to request a specific transfer limit. However, that doesn’t mean that you’ll be granted that amount since your issuer is free to decide that on their own based on factors such as your income and outstanding liabilities.

Spending incentive: The aforementioned rewards make the card extremely appealing, even when you don’t actually need one. If you fall into this trap, you’ll end up racking up a huge debt that you’ll have a hard time managing.

Verdict

We can’t tell you whether or not zero percent interest credit cards are right for you, seeing as everyone’s financial situation is completely different. They can offer you great perks, and if used correctly, help you out of some tight spots as well. That being said, no credit cards should be taken lightly, especially ones that can lead to considerable financial difficulties.