What Does 0% APR Mean?

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A 0 percent annual percentage rate means that, as a borrower, you pay no financing costs to secure and utilize a loan. A loan with no APR is advantageous for a borrower because you don't pay interest expenses as you pay back the balance of the loan.

How APR Works

APR incorporates all finance fees with a loan. It often is slightly higher than the interest rate quoted, as it includes both the interest charges for carrying a balance and the upfront fees you might pay to obtain the loan. With a 0 percent APR offer, you pay neither type of finance fee. In some cases, a company may offer a no-interest loan, but an upfront finance fee prevents it from being a 0 percent APR loan. Lenders are required to quote loans using APR to ensure an apples-to-apples cost comparison for loan shoppers.

The most obvious advantage of a 0 percent APR loan is that you don't pay interest on the loan. If you have other loans or high-rate credit cards, you can pay the minimum balance each month on the 0 percent loan so you can use any extra money to pay down higher-rate balances. On some loans, the interest expenses eradicate discounts and sales incentives on the purchase. With a 0 percent APR, you don't have to worry about interest charges negating any savings on a promotional deal.

The Catches

Zero percent APR promotions are common in the car industry. Dealers often have them to entice bargain-hunting car buyers. While such offers are typically legitimate, a lot of people show up and select a vehicle only to find out they don't meet credit qualifications. In some cases, even when you qualify for a 0 percent loan, you have to repay the balance in a shorter time period. If you can't make high monthly payments, the dealer may offer slightly higher rate loans with longer repayment periods.

Credit card companies are also notorious for making 0 percent offers to consumers. In some cases, you are preselected for offers, but the company checks for credit score changes before the final approval. On an open application, you may not quality for the provider's 0 percent APR. Before applying for a card promotion, review the fine print to see whether you have to pay annual fees or risk other fees that providers use to replace lost interest income. Some card companies offer 0 percent purchase APRs, but charge a finance fee or interest expenses on balance transfers.

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