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Credit card companies are always looking for new customers, and one effective strategy for getting them is to offer interest-free deals. With the typical cost of borrowing on a credit card well above 10% APR, paying no interest sounds like an excellent deal. However, it is important to understand the offer fully before diving in.
What are these credit cards offering?
Credit cards are never interest-free forever, and that is the critical part to remember when considering getting a new card. What the credit card companies are offering is an initial promotion where you do not have to pay interest on some or all of your balance. The details depend on the particular offer, and there are several types you might find.
Most credit cards offering the interest-free perk will waive interest charges so you do not have to pay them at all for a specified period.
However, retail stores interest-free financing promotions are often credit cards with deferred interest. With these, you do not have to pay interest if you pay off the balance within the promotional period. During that promotional period, however, you are accruing interest charges and they will be applied if you do not pay the balance in full by the end of the promotional period. Often, those interest charges are at a much higher interest rate than offered by typical bank or credit union credit cards.
What is the credit card company’s goal?
The credit card company is looking for a long-term customer who will use the credit card on a regular basis. The interest-free offer helps the company motivate you to put the card in your wallet, and once it is there, they can make money when you use it. For example, every time you swipe your credit card, the issuer collects a fee from the retailer. In addition, the credit card company will begin to charge interest on any existing account balance after your promotional interest-free period has ended.
What should you consider before you apply?