Interest-free financing for six months! Buy now, pay later! Advertisements for credit cards with no interest can be extremely appealing, but these offers leave many consumers wondering if there’s a catch. After all, it can’t just be free money, can it?
The short answer is yes, sometimes it can. But that doesn’t mean you shouldn’t do your homework. Not all interest-free offers are created equal. Here are a few of the interest-free credit card options consumers can access and what you need to know about them before you apply.
Store Credit Cards
Some furniture, appliance and electronics retailers offer interest-free financing on their store cards. Simply pay off your balance before the interest-free repayment period ends and you’ve purchased your bedroom set or sofa or dining room set interest-free.
But study the terms of these offers carefully. What happens if you don’t pay the balance in full during the interest-free financing period? What kind of interest rate will you be charged and how much will you end up paying?
Be diligent about your payments so that you pay off that big purchase you’ve been eyeing without paying any interest charges. Or, if even the possibility of paying interest on such a large purchase scares you, consider saving the money and buying the item in cash down the road.
0% Credit Card Offers
There are many credit card issuers that offer 0% financing for a year or more to new customers with good credit. If you qualify, this is a great way to make purchases that you want without getting bogged down with finance charges if you end up carrying a balance.
As with store credit cards, it is important to study the terms of the offer carefully. How long will the introductory interest rate last? Does it apply to new purchases only? Balance transfers? Both? What interest rate will you pay if you happen to carry a balance after the interest-free period ends?
There are some situations when balance transfer credit cards make a lot of sense. Snapping up a 0% balance transfer offer is a good way to catch a break on finance charges if you’re already in credit card debt as you focus on paying it down without accruing more interest. Check for balance transfer fees, which can be 3% or 4%, and be sure to continue to make payments on your other card until the balance transfer goes through.
How to Make the Most of an Interest-Free Credit Card
As great as it is to have a credit card with a 0% interest rate, it’s no time to just coast financially. Make the most of your interest-free repayment period and pay down as much debt as you can. You want your card balance at zero when your introductory, interest-free period ends.
To help you stay diligent with your payments, you may want to automate your payments so you never pay late. If you slip up and forget a payment, you could lose your 0% rate, and get hit with a late fee. It will also ding your credit score, and there’s nothing fun or free about that. (You can see how your payment history is affecting your credit by getting your two free credit scores on Credit.com.)
If you stay on top of your credit card payments, you’ll build up a solid credit history and enjoy interest-free credit card purchases. Pay online, pay by phone, set up email or text reminders so you don’t forget. Keep up with your payments and pay off your balances to live interest-free with your credit cards.
This article has been updated. It was first published March 12, 2015.