0% Apr or No Annual Fee? (2024)

FAQs

Is it better to have 0% intro APR or no annual fee? ›

A 0% APR credit card can work better for you if you plan on making a large purchase and don't anticipate paying the balance anytime soon. However, if you plan on paying the balance in full after each billing cycle and want to minimize costs, then a no annual fee card would be recommended.

If you tend to carry a card balance, you should aim to minimize interest expenses by using a low-interest rate card. You may have to pay an annual fee in exchange for the low rate but may save more in interest expense during the year than the cost of the annual fee.

Opening a new card will increase your available credit, which typically lowers your utilization rate and helps your scores. However, if you have a 0% APR offer on a credit card, you may be more inclined to let your balance grow. Your utilization rate will then increase, which might hurt your scores.

Having a credit card with no annual fee is especially beneficial for those on a tight budget who want to maximize the rewards earned from their credit card. Many of these cards offer competitive rewards programs and perks, so you can still enjoy the benefits of using a credit card without worrying about an extra cost.

Then they make money from interchange fees that retailers pay on every purchase that a consumer charges to a credit card, from balance-transfer fees, and from customers who don't pay off the balance before the introductory period ends, thus having their remaining balances subject to the banks' regular interest rates.

Costs of an interest-free deal

If you still have money owing after the interest-free period ends, you'll be charged interest. Interest rates can be as high as 26%. Retailers also charge fees on interest-free deals, which may be added to the amount borrowed.

Penalty APRs are part of why credit card overspending can be so dangerous, as they may reach higher than 29.99% when a payment is at least 60 days late. Interest rates this high would be unthinkable in most other common lending contexts.

Anything below the average credit card interest rate — 23.55% for new offers, as of February 2023, according to a LendingTree study — is generally considered a good APR, and anything above that rate is considered high.

If your goal is to get or maintain a good credit score, two to three credit card accounts, in addition to other types of credit, are generally recommended. This combination may help you improve your credit mix. Lenders and creditors like to see a wide variety of credit types on your credit report.

When your intro APR ends, your credit card's regular APR will kick in on any remaining balance and new balances. It's important to know when your promotional period ends so you can work on paying off your balance beforehand and avoid being surprised by mounting interest on a residual balance.

Should I zero out my credit card every month? ›

Paying off your credit card balance every month is one of the factors that can help you improve your scores. Companies use several factors to calculate your credit scores. One factor they look at is how much credit you are using compared to how much you have available.

The bottom line. Credit card inactivity will eventually result in your account being closed. A closed account can have a negative impact on your credit score, so consider keeping your cards open and active whenever possible.

A balance transfer credit card is an excellent way to refinance existing credit card debt, especially since credit card interest rates can go as high as 30%. By transferring your balance to a card with a 0% intro APR, you can quickly dodge mounting interest costs and give yourself repayment flexibility.

Cards with a 0% introductory APR offer are ideal for paying down transferred debt or financing a large purchase interest-free.