A credit card with a no-interest offer might sound like the perfect opportunity to buy something big, transfer a balance, or get that new piece of furniture you’ve had your eye on. But if you sign up for one of these cards without fully understanding its terms, you may wind up paying interest on each of your purchases.
The fine print on these credit cards can include important notices about dates and changes to the terms of your introductory or offer period, which could be very relevant to your spending patterns. Here are some details you should be aware of when considering a no-interest credit card offer:
No-Interest May Be Deferred Interest
Retailers often offer these cards during busy shopping times, with terms including no interest on purchases for the first 12 or 18 months for new customers. Some cards may help you save big on major purchases by extending your payments for months without interest.
But according to Kathryn Crumpton of the Center for Financial Wellness, a consumer credit counseling service, once the introductory period ends, “sometimes they will go back to the beginning and charge interest.”
If you don’t pay the full balance before the introductory period ends, you may be required to pay interest on each of your purchases, even if you’ve nearly paid the full balance. The interest rate may also be much higher than you expect, sometimes as high as the penalty rate for some regular credit cards.
“If you plan to carry a balance, that interest rate becomes paramount,” says Crumpton.
Missed Payment Penalties
Missing a payment on your credit card may also affect your financial health, with penalty fees incurred, higher interest rates assessed, and the potential to negatively impact your credit score.
“If you miss a payment, it will probably increase your payments,” says Crumpton. Though actual details will vary depending on your card’s terms of service, you should always look through your contract and be sure you understand when and why fees may be applied.
Besides adding extra fees, missing a payment may add to the debt you already owe. If you are working to pay the balance on a no-interest card, missing a payment or even charging additional purchases to take advantage of the no-interest deal could result in your being unable to pay the remaining balance later, potentially leaving you responsible for the full amount of interest accrued during the card’s introductory period.
“A good rule of thumb is, don’t charge more than what you can comfortably pay off in a couple of months,” says Crumpton.
The attraction of a no-interest card might make it hard to resist. Many consumers sign up for cards impulsively, often not fully considering their financial implications–or obligations. How you manage your expenses, including credit cards, is important to your overall financial health.
“Money management is a skill, and you have to learn it and practice it to be good at it,” says Crumpton. If you don’t currently feel in control of your finances, a new credit card may not be the solution you need.
You can begin educating yourself by reviewing your next credit card statement and reading the fine print, looking carefully for details about how and when to make payments. The statement and terms should explain the length of time pay your balance entirely with minimum payments, as well as note the date when the no-interest period will expire.
Taking the time to review a no-interest credit card offer, as well as your own finances, can help ensure that what looks like a good deal doesn’t end up costing you any extra interest.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.