Not all 0% offers are created equally. Some credit card companies offer â€śdeferredâ€ť interest, whereas others off â€śwaivedâ€ť interest.
Letâ€™s take a simple example. You spend $1,000 on a credit card with an APR of 18%. You will make payments of $75 every month. There is a special offer that gives you 0% interest for 12 months. On â€śCredit Card Aâ€ť interest is deferred. On â€śCredit Card Bâ€ť it is waived. After making 12 payments of $75, the remaining balance in month 13 would be $100.
Credit Card A: Deferred Interest
With a â€śdeferredâ€ť interest offer, the bank does not forgive the monthly interest accrual. Instead, the bank just keeps track of the interest that would have accrued. If you do not pay the balance in full during the promotional period, you will get retroactively charged the interest at a high interest rate. In the example above, you would be charged approximately $117 in month 13. (I use â€śapproximatelyâ€ť because credit card companies have slightly different ways of calculating and charging interest. But it is safe to assume that you would be charged more than $100 of interest on your remaining $100 balance.)
Credit Card B: Waived Interest
Waived interest is very different. For every month of the promotional period, the credit card company actually forgives the interest. There will never be a retroactive catch up after the promotional period ends. In our example, you would only be charged $3.26 of interest in month 13, compared to more than $100 in the deferred example.
Deferred interest products are surprisingly common. If you are being offered 0% financing by a retailer, you are probably being offered a deferred interest product.
In order to qualify for a 0% intro purchase credit card, you will need to have good credit. If your credit score is above 700, you are highly likely to be approved by one of the issuers. If your score is between 650 and 700, you still have a good chance.
With a credit score below 650, it is highly unlikely that you would be approved, though you may want to check to see if you are pre-qualified for a card before applying. Many of the banks let you check to see what deals they are specifically targeting to you, and you can see a list of them here. Checking what youâ€™re pre-qualified for wonâ€™t show up on your credit report or score.
In addition to your credit score, the credit card company will want to ensure that you are employed. And most credit card companies will look at your debt burden.
If your debt burden is more than 50%, it is unlikely that you will be approved.
The lower your debt burden, the better your chances. You calculate your debt burden by dividing the monthly payments on your credit report (which would include your mortgage, auto loans, student loans, personal loans and credit cards) by your monthly paycheck before taxes are taken out.