How Does Zero Percent Interest on a Credit Card Work?

Introductory Interest Rate

Credit card companies offer zero interest rates for a variety of reasons. Companies know that consumers carry a lot of credit card debt and are often looking for ways to consolidate the debt into a lower interest rate, and these same consumers can sometimes be lured to do balance transfers with the promise of a zero percent interest rate. A zero percentage rate on a credit card is almost always introductory. Both traditional credit cards and merchant credit cards offer introductory zero percent interest rates for new credit card accounts. However, these special interest rates expire after a predetermined amount of time, commonly six to twelve months after the card is issued.

The Rate Expires

When the zero percent interest rate expires, one of two things happen. Some credit cards consider the expiration of the zero percent interest rate as a clean slate. In other words, the interest rate adjusts and from that moment on the balance is subject to the new interest rate. Other credit card companies allow interest charges to accumulate while the card is under a zero percent interest rate. When the rate adjusts after the expiration date, the accumulated interest is added to the balance. It is as if the eventual interest rate was charged all along, but it does not come due until the rate actually adjusts. In the majority of cases this can be avoided by paying the balance in full before the adjustment date, but this is not always the case.

Terms and Conditions

Don't miss a payment or exceed your credit limit when your credit card is still under a zero percent introductory interest rate. Any deviation from the original agreement of the credit card can easily wind up with the zero percent interest rate getting cancelled and a much higher interest rate immediately replacing it. If you read the terms and conditions of the original agreement it will plainly state that a missed payment or exceeding the credit limit allows the credit card company to legally cancel the introductory interest rate and increase the rate greatly. Introductory interest rates end quickly when the cardholder does not make payments as scheduled.