Why would anyone pay an APR on a credit card when you can get one with 0% introductory rate for 1 year?

Question

A lot credit cards today give you 12-18 months with 0% APR.....After the intro period is up just cancel the card and go on to another one that is offering the same type of promotion. I just don't understand why anyone would pay 20-30 APR on money they can virtually have for free!!!!! I am about to graduate college and just got my first card last year so I don't know if this is a good or bad thing to do for my credit. Please let me know!!!!

Answer 1

0% APR loans can be very attractive but also very risky. Below are some benefits as well as some of the risks:

Benefits:
* Not paying interest!
* Buiding your credit history, especially at your point in life as a recent grad

Risks:
* Hidden fees
* An APR that could change suddenly
- If you should miss a payment; your APR could rocket to over 20%! Check the fine print to see what you might be agreeing to!
* It's not 0% APR on all of the credit card's balance
- You need to once again check the fine print for this bit of "trickery". Some cards advertise 0% on balance transfers, some on new purchases. Depending on your situation, the 0% might not even be a benefit. Further, miss that little detail, you might not have a balance to transfer, think you are realizing 0% on your new purchases, and then get shocked by that 20% in as little as a few weeks

In short, you need to first determine the reason for acquiring your new line of credit: Set your goal. If the credit offer helps you to that end, it might be a good idea. Plan a head and be safe with your credit!

Answer 2

A couple of things to consider about the introductory rates:

They expire, and like you mentioned, you have to transfer the balance. There's a possibility another bank won't be so generous next year after they review your credit report.

Your credit rating is based on several things: on time payments, balances to credit limit ratio, and your total debt to income ratio. Closing an account affects the debt to income ratio badly.

Many credit cards now have "punitive pricing", where the rate will increase if you are late by even one day, or if you are late with another creditor, or even if they no longer consider you as credit worthy because you now have 10 credit cards with maxed out limits.

If you transfer a balance to an introductory rate, DO NOT USE THE CARD UNTIL THE LOW RATE PERIOD IS OVER! The bank applies payments any way they see fit, but usually to whatever balance has the lowest interest rate. If you make a purchase at 18% while there's an amount still being charged 0%, your payments will go towards that purchase only after the 0% amount has been paid off (next year?). That single purchase will sit there, accruing interest, compounded monthly.

If you're not transferring balances from a higher rate card, the best thing to do with a 0% balance transfer is to put the money into a money market account to collect interest.

Answer 3

The credit score system places a lot of weight on the length of time accounts are held, as well as how many new accounts you've opened. Keeping a credit card just for the introductory rate is going to be detrimental to your credit scrore.
If you want to pay 0% interest on your credit cards, just pay the full balance a few days before the due date. I have had the same 2 credit cards for 18 years, and have never paid a cent in interest. This has helped me to keep my credit score high, and kept more of my money in the bank.

Answer 4

Have you read the fine print? Can the credit card company raise you rate whenever they feell like it?

What if you can't get another zero APR card when this one expires, what will your interest rate jump to?

What happens if you pay a bill late or invoke the "universal default" clause? Will your rate go to 30%?

You have to be very careful of these offers. There are many gotchas buried in the fine print.

But if you are aware of them and take care to avoid the pitfalls your plan will work until you run out of zero apr offers.

Finally, not everyone can qualify for these offers. For some 20% is a bargain.

Answer 5

This is BAAAAAD for your credit.
15% of your score is based upon history/account length. If you only keep credit cards open for 12-18 months and then close them and open new ones, you are maintianing a VERY short average length.

Also, people don't just 'automatically' qualify for these intro offers.....so some peopel might be racking up inquiries trying to find oen that will accept them on those terms.

Also, many 0% intros only count for balance transfers, so again its not helping if you want to go make a large purchase.

Answer 6

Just make sure that you've read the details carefully. Most often the 0% deals only refer to balance transfer and not to purchases. These are good deals if you get the bank to transfer funds to your checking account. Just be careful, though, because after the first year, you'll be faced with paying off the entire balance due or start paying a very high rate... often the rate for balance transfers is even higher than the rate for purchases. Write me at [e-mail] if you want to discuss more,

Answer 7

Opening cards for the introductory rate and then cancelling them hurts your credit score since the number of accounts open is lowered (while your closed accounts are high) as well decreases your average account age. It is better to look for a card that has a better overall quality. (The intro rate and the long-term rate). Then keep the card.

Answer 8

Don't cancel the card, just let it sit. Your credit rating is effected largely if you cancel it. So multiple cards add up (after cancelling them) to a poor credit rating. Yeah, I know, there are consequences to every action....

Probably a few of these wouldn't hurt you, but after a while, you will start being refused. Credit cards are dangerous territory anyways, just go slow and be careful.

Answer 9

Don't think there is any such card you have described, you better read the fine print.