Welcome to a regular feature on the Eye of the Flyer blog. This blog series covers in a “rookie” way either a Delta or travel related theme and attempts to break down to a basic level each topic. You can read up on all the previous posts HERE. Now on to our featured topic.
Plenty of credit cards tout 0% APR promotional offers for new applicants.
For example, the Chase Freedom Flex℠ offers new cardholders a 0% APR (i.e., no interest) on purchases made during the first 15 months of card membership.
Even though you have a card offering 0% APR, you are obligated to make minimum payments. And I think that’s where some people — especially those new to credit cards and/or no-interest offers — may get confused.
I recently made a big purchase with a new 0% APR card. I’ll walk you through the entire process from card selection to purchase to receiving my first bill.
Me: An Example
Last month, my beloved mid-2012 MacBook Pro starting tapping out. The machine slowed down considerably and ejected hard drives without my prompting. So I needed a new MacBook. Fast. (I wonder if René makes laptops? 😉 )
Amazon had the 16-inch MacBook Pro for $2,499. That was a better price than Apple and Best Buy advertised. I also would need to get a USB-C hub (I bought this one), cables, this travel charger, and wanted to upgrade external storage to this Samsung SSD. So between those purchase prices and ludicrous California sales taxes, I was looking at about $3,000.
Yikes.
Even though I had the money, I didn’t necessarily want to pay the entire $3,000 right away — especially in the current economic climate. I allocated that money for other purchases — essentials like food and clothing for my daughter, monthly bills, red wine, bourbon… 😉 .
So I searched for a card offering a promotional 0% APR.
The Blue Cash Everyday® Card from American Express ran a limited time offer: get 20% back on Amazon purchases (up to $1000 in spending), plus $150 back when spending $1000 within three months of approval. On top of that, I’d get another 1% on everything. That would bring down my total to about $2620. So welcome offers would save me nearly $400 within a few seconds.
As for APR, it offered 0% on purchases for the first 15 months of card membership. That would give me until about January 2022 to pay the tab. That averages out to $175 a month — which is much more palatable than coughing up $3,000 all at once.
I applied for the card, was approved (after canceling my Delta Platinum Business Amex — that’s a whole ‘nother story), and it arrived two days later. Then I bought my laptop and accessories during a stomach-churning ten minutes.
My first Blue Cash Everyday® Card statement arrived the other day. You’ll notice there’s a minimum payment due.
But why is there a minimum payment due? Don’t you have 15 months to pay off your balance?! you may ask.
If a card gives you a limited-time 0% APR, that doesn’t necessarily mean you won’t have a minimum payment due.
A no-interest/0% APR offer gives you time to pay off the entire purchase without paying interest — provided you make each month’s minimum payment on time. So in my case, I have 15 months to pay off $3,141.65 as long as I pay the minimum due every month.
But if you fail to make the minimum payment, get ready for some ugliness. That will:
- probably void the 0% APR offer
- trigger an insanely high APR
- accrue a late fee
So in my case, missing one minimum payment would be stressful and expensive.
Credit card companies literally bank on people screwing up. They know some people can’t keep up with payments — and will owe more than their statement balances. That’s true for pretty much every credit card out there.
Promotional Period
Let’s talk about the promotional periods for those no-interest offers.
A card’s running balance is covered during the promotional period. Let’s use the Ink Cash Credit Card, which offers a 12-month, interest-free promotion right now. Purchases made during month 12 will have to be paid off when that period’s billing statement hits. So please don’t think anything you buy in that final month gets its own 12 months to be paid off.
So Should You Get a 0% APR Card?
Well, that depends on your budget and spending habits. If you have a plan to pay off your purchases, then a 0% APR card may work.
There may be bonafide emergencies when you may need to float some cash you know you’ll soon get. That might be worth getting a 0% APR card (when those instances occur if you can wait a couple of days).
Don’t be that person. (©iStock.com/Jovanmandic)
It’s easy to charge a bunch of stuff — then suddenly find yourself on the hook for it. I learned the hard way about credit. If you find yourself saying, Oh, I have time to pay it off! What other fun stuff can I buy?! you might want to reconsider.
What Are Some Good 0% APR Cards?
Some of my favorite cards (that my wife or I personally have) currently running 0% APR promotional offers are:
- Chase Freedom Flex℠ (No annual fee)
- Ink Business Cash (No annual fee)
- Blue Cash Preferred® Card from American Express
- Blue Cash Everyday® Card from American Express (No annual fee)
Final Approach
Cards offering 0% APR promotions can be helpful and worthwhile — if you know what to expect and how to correctly use them. Make sure to have at a loose plan how you’ll pay the charges.
Featured image: ©iStock.com/Pheelings Media
Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
I did this once a few years ago dragging out the payments at 0% and religiously made the minimum payments on time but it hit my credit score hard that I was carrying a balance so my credit score dropped from 800 to 750. 50 points. So to me it was a mistake I will not make again. If I have the $3,000 I’d rather just pay it all upfront.
Interesting, Frankie. Thank you!
I found the same as @Frankie. Even paying minimum payments and having a perfect payment record my score dropped to less than 800 as a result of doing a few of these. Other things to beware of are if you do a balance transfer. In some cases, from then on, until you pay the balance, any purchase you then do on the card will accrue interest immediately, even if the balance transfer rate is 0%. Nevertheless if the alternative is taking the money from an IRA, and you think you will eventually have the money, even with paying the transaction fee, it’s better than paying a 10% early withdrawal fee.