Credit terms can be quite confusing, and it’s easy to get bogged down by complicated terminology like “0% APR”.
But don’t despair, as we’re here to bust the jargon so you can make the right decisions when shopping around for credit products.
Annual percentage rate
In its simplest form, APR means the amount of interest and charges you’ll pay in a year for borrowing. So, if you agree to borrow something with a 0% APR, you won’t have to pay any interest or charges on it for the period of the offer. The terms will specify how long this offer lasts for, and it can range from anything between a couple of months to two or three years.
This figure will include any charges you’ll have to pay during the agreement, so if it’s 0% APR, you shouldn’t have to pay anything to borrow the money. Just remember that you’ll have to make at least the minimum monthly repayments. If you don’t pay at least the minimum on time each month you may find that the 0% offer is cancelled and you have to pay interest on what you’ve borrowed.
You could find 0% APR deals on a number of products, like car finance or certain store purchases. Often, you’ll have to have an above average credit history to qualify for this.
Because of the way credit deals are advertised, it can be really easy to mistake 0% APR for interest-free periods.
For example, if you’re getting a 0% balance transfer credit card, the 0% might fool you into thinking the card is completely free. However, many balance transfer cards charge a fee on the balance you’re transferring over, so you could end up paying quite a bit more than you anticipated.
This is because the 0% part on a balance transfer card means you can move your existing credit card debt to a card that won’t charge you any interest on the balance for the specified length of time. But, you may see that they charge a fee of perhaps 3% of the balance.
Similarly, credit cards offering 0% on purchases may subject you to a one-off fee, and both types of credit cards can also require that you pay an annual fee – say £36 every year you have an account open with them.
You should always be told about any fees pretty clearly before you apply, but it pays to be extra cautious in case you miss something.
Keep an eye out
Remember that 0% APR offers usually only last for a specified length of time, so make sure you keep a note of it once you find out.
The advertised time period might be different to what you actually receive too, so make sure to check over everything a second time once you’ve been approved. Get familiar with the terms of your credit agreement as it could end up costing you if you don’t!