It is common to hear the term “APR” and “0% APR”, when it comes to “Financing”. So, what does 0 APR mean? This is something I am going to explain you today.


What Does APR Mean?

APR is abbreviated as “Annual Percentage Rate”. It is the yearly interest rate on one’s credit card. This annual or yearly interest is charged whenever money is borrowed. APR is expressed in “%”, a number representing the yearly cost of the loan borrowed. To put it in simple words, APR is annualized rate. It describes the interest rate to be paid for the money you have borrowed. This rate is calculated for a year than in months.

APR can be classified into 2 major types, which are

  • Nominal APR = Simple Rate of Interest per Year
  • Effective APR = Compound Rate of Interest per Year + Fee

Credit or loan agreements may differ in terms of transaction fees, interest structure, late penalties & other factors. However, a standard APR computation gives a borrower a bottom-line number, which he or she can compare easily with different interest rates charged by other financiers.

By law, loan issuers and credit companies should show the APR to their customers. This facilitates a proper understanding of applicable rates. A credit card company is permitted to advertise its monthly interest rates (example – 2%) but is required to state its APR clearly to its customers before signing an agreement.

Since you have known about APR now, let me explain what does 0 APR mean.

What Does 0 APR Mean?

I am sure you must have seen those advertisements offering you “teaser” deals. This is when you wonder what does 0 APR mean for credit cards? what is this 0% all about? Why APRs vary from the initial year to the next? And most importantly how it affects one’s credit card account? Let me answer you everything one by one.

So, what does 0% APR mean? Well, when you own a credit card with 0% APR, then it literally means that your yearly rate of interest is zero & you can easily save lots of money by transferring a higher interest rate balance to a credit card, which does not charge any interest. Remember, higher is the interest, more you have to pay. And many credit companies advertise this 0% APR just to attract new customers. This 0% interest always entices customers to get into it. Sometimes, there are even deals being advertised saying – “Same As Cash”. However, the fact is that you would be still borrowing & in the end things might take up bad turns. This kind of “Free Borrowing” seems great but doesn’t last long. It might be 0% for the first year but for the 2nd year it is larger than you had thought. So, it is more of a trap. Don’t blindly fall for it. Instead, do a deep research because no financial institution will want to suffer “loss” by being so generous to its customers. There are hidden strategies to make money, which you aren’t aware of.

I hope you have understood little on what does 0 APR mean. Now, let’s get deeper.

More About The 0% APR

Always keep in mind that the zero percent APR deals can assist you save some money but chances are that you might end up paying other fees in between. Say for example, your card company may charge a fee for “balance transfer” in order to pay all the balances of other credit cards. This fee may actually be lesser than you would pay in interests with your old card. However, you are still paying! Similarly, you may end up paying an yearly fee to your issuer, which might not be included in the offered APR. So, pay attention to all this and ask them to give a detail description. Obviously, you don’t want to be shocked in the middle when they bring up those “hidden charges” to you.

How To Take Complete Advantage of 0% APR?

If you decide to get into the 0% APR deal, let me also tell you that there is an 100% possibility to pay nothing & still be able to take complete benefits of your 0% APR. The trick here is to be diligent. You can do this by paying off your entire loan amount before even the period ends. And don’t forget to make payments on time. If it delays, you are in trouble – the company might charge double interest on the remaining balance.

Introductory Offers Are Good But Once The Term expires, It Is Higher

Repeating my statement again here, credit card companies offer 0% introductory or promotional rates for 6 to 12 months, which is mainly to pull customers. This might not let you pay for the respective term but as soon as the period expires, standard APR rates will start including. Often, this new interest rate is higher & your balance is subject to some financial charges as well.

Learn The Terms For Late Payments

If you miss any payment or turn out to be late, then the respective offer could be canceled. Your whole balance gets into a default rate, wherein the interest could be about 25% or even higher. However, this differs from one Credit Company to the other. Most companies won’t reinstate the 0% APR in case you’re late. And the only means to obtain same terms again is by accepting another offer of “balance transfer” from a credit-card company.

Know The Balance Categories

The balance on your credit card can be split into 2 or 3 categories. For example, you may have credit card purchases that are subject to high APR (like 12%), while another balance portion may have 0% APR. Now, whenever you make payments, it will go towards paying off balance with 0% APR than the one with 12% APR. This lets your purchase balances to build up interest.


Many people end up doing a balance transfer once another zero percent APR becomes accessible. However, while doing this, usually there is a 3% fee charged on the transferred amount.

Purchases & Transfers

A credit card account may have different APRs. Say for instance, your card issuer might charge an APR on purchases & another on balance transfers. Issuers might encourage a customer to utilize your card just by offering attractive promotional APRs, which is usually of low interest rate for a particular period. And when this duration ends, APR might adjust into a bigger level. Thus, raising the charge of holding your monthly balance. However, if used wisely, these low APR rates can help you save you big money.

As said above, few credit companies offer 0% APR only on balance-transfers while others offer only on purchases. However, the best option would be going with one that offers 0 APR for both purchases and balance transfers. This way you don’t have to pay interest on any category.

How Is Your Monthly Rate Of Interest Calculated?

The interest rates are usually calculated on monthly basis. But every month varies in length, which is why most credit card companies use a DPR (Daily Periodic Rate) for calculating the rates. Here’s the formula

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DPR = APR ÷ 365


The output from the above formula is further multiplied by your average every day account balance & total days in statement’s billing cycle. Here is the formula to calculate monthly

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Monthly Rate of Interest = Balance x Days in statement’s billing cycle x DPR


What Does APR Mean For Credit Cards?

With a credit card, one has to pay interests if he or she doesn’t settles complete statement balance for every billing cycle. This means that one can have a credit card without interests as long as he or she pays in full! Nevertheless, if one decides going with at least 1 billing cycle without making a complete balance payment, then the person is immediately charged with interests. And, even if there is a full payment done always, he or she may be still charged – so check with the credit agreement for this. Once a person is in a condition, where he or she cannot make full payment, then obviously the balance will be carried from one month to the other. This is exactly when interests are charged on “daily basis”.

What Affects An APR (Annual Percentage Rate)?

Whether you are going to pay a low APR or a high APR, all depends on the below factors:

1. Loan Type

Few loans are expensive when compared to others. So, each loan varies. Usually, auto loans and home loans come in low rates because home is obtainable as collateral. And more often people tend prioritizing these loans. On the other hand, credit cards are like unsecured loans. Since they are unsecured, risk is higher. Thus, making you pay more.

2. Credit

Borrowing history or credit history is yet another vital part while making a lending decision. Chances of getting a very low APR are higher only when you have paid payments on time for a long time. Solid history is the key!

3. Ratio

It is all about risk here. If a lender thinks that he or she can avoid losing the lent money, then lower APR is offered. For auto and home loans, it is significant to have

  • Low LTV (Loan to Value Ratio) and
  • Better Debt to Income Ratio

Good ratios demonstrate that you are capable of managing your finances well.

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