How do zero interest credit cards work?
Zero Interest Credit Card
With Zero Interest Credit Cards you have the best of the best. Free use of borrowed money is always a good thing.
We have all been there: We need a new credit card, so we go out and shop for one. You might check with your bank or you might see one of those zero interest credit card advertisements. Zero interest sounds great so you might wonder: How do zero interest credit cards work? Well, there are some tricks to it so don’t believe the hype.
Every credit card company earns money as soon as they lend money via the card to anyone who’s using it. Unfortunately for these companies in recent years, competition became fierce as more and more companies entered the market looking to compete. This increase in competition lead to credit card companies trying to find new tricks to get new customers to sign up for their particular credit card. One of the ways credit card companies try to persuade you to sign up is by offering you a zero interest credit card.
A zero interest credit card:
A zero interest credit card implies that you can basically borrow money for free, which means that you would only have to pay back the amount you paid for the item you purchased. This sounds like a great deal doesn’t it? As with most things, we have to take closer look at the details before we can make a decision. So let’s take a look at how zero interest credit cards work.
The credit card company:
The credit card company will give you a zero interest credit period, which means that after you sign up you have, in most cases, 3-6 months where you can use the card without having to pay interest. Some companies extend this period up to 12 months, while other only grant you 4 weeks. This is important to know, since after the zero interest period has expired, you will automatically enter the normal interest period. Due to the fact that the company granted you a zero interest period, the interest you will be charged after you enter the normal interest period will be substantially higher than, say the industry average or credit card average. Credit card companies do this to lower their risk and make sure that they get back all the revenue they lost by giving you a zero interest period.
Free Money:
As you can see, the hype is totally overblown as there is no such thing as free money. You will have to pay for the money you borrow, sooner or later. Hopefully this article has answered your questions: How do zero interest credit cards work?
Related articles
- What are the advantages of a debit or credit card (wiki.answers.com)
- Credit Card Zero Interest
- How To Find a Zero Percent Interest Credit Card
Check out this common sense video to help explain how a zero interest credit card works:
Credit Card Smarts: Stuff Your Parents Should Have Told You
Before you apply for a credit card watch this video. Learn all about spending, interest rates, fees and payment scheduling of credit cards. Become responsible with your credit card and it will work for you, not against you.
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