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What’s the deal with zero percent interest rates?

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When considering loans and credit cards, one of the most important details to think about is the interest rate. When you hear zero percent rates advertised on credit cards and auto loans, it’s understandable to consider the offer. Zero percent on interest means that no interest will be charged on your loan or credit card. Does this seem too good to be true? It’s possible it is. Let’s go over some details to consider before taking out a loan or credit card with a zero percent interest rate.

Limited time offers
Often zero percent interest rates are only for a limited amount of time. We see this frequently with credit cards where the zero percent expires and reverts to the original interest rate (decided by the credit card company) once the established time has passed. This becomes problematic if borrowers spend more than they can pay and are then charged interest on their balances. If you open a credit card or loan that offers zero percent for a limited time, be sure to budget yourself appropriately to ensure you can pay the balance before the interest rate changes.

Hidden fees
Other offers allow zero percent under strict stipulations. For example, you may only enjoy the benefits of zero percent if you can make your monthly payments on time. If you are late on a payment, the interest rate could be subject to change or you could be charged additional fees. Those fees can be assessed once or multiple times, even if you were late on only one payment. Fortunately, these stipulations are required to be disclosed upon taking the loan or credit card. Take time to read through all the fine print to know what might impact your zero percent interest rate.

Impact to credit score
Zero percent might mean money savings for you, but it doesn’t mean that your credit report won’t be impacted. Remember, any new loan or credit card impacts your credit report regardless of the benefits it provides to your day-to-day finances. A new loan could initially lower your credit score and additional credit card debt also impacts your score. Check out your credit score and know what’s on your report before taking the zero percent deal. The risks could outweigh the temporary benefit of no interest.


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Deidre Davis

Deidre Davis is the Vice President of Marketing and Communications at MSU Federal Credit Union. MSUFCU's headquarters are at 3777 West Road East Lansing, MI 48823. Contact Deidre ad deidre.davis@msufcu.org or (517) 664-7877.