Are 'no interest if paid in in x months' credit cards worth it?

You can't buy it outright.You can't take the time to save up.

if the remaining choice is between a card that charges from day one, and a card with this kind of grace period, the grace card is the better choice. Plan wisely, pay it in full before that rate starts to be charged.

One additional note - There are two groups of people, the pay-in-fullers and the balance carriers. I believe that one should pay in full, and never pay interest.

A zero rate offer can be used by the balance carrier to feel great for 12 months, but have even more debt after the rate kicks in.

As a pay-in-full user, I've used the zero rate to throw $20K at the 5.25% mortgage, and planned a refinance to 3.5% just as it ended. a $750 savings (after the tax effect) well worth the bit of effort.

The fees should be in the fine print. My zero rate had a transfer fee, $50 max, which was nothing in comparison to the savings.

It has been reported in consumer media (for example Clark Howard's radio program) that the "no interest for 12 months" contracts could trick you with the terms and the dates on the contract.

Just as an example:

You borrow $1000 on 12/1/2013, same as cash for 12 months. The contract will state the due date very clearly as 12/1/2014. BUT they statements you get will take payment on the 15th of each month.

So you will dutifully pay your statements as they come in, but when you pay the final statement on 12/15/2014, you are actually 14 days late, have violated the terms, and you now owe all the interest that accumulated (and it wasn't a favorable rate).

That doesn't happen all the time. Not all contracts are written that way. But you better read your agreement.

Check for:

  • The due date
  • The penalty dates
  • How you must pay
  • Where you must pay
  • Are there prepayment penalties?

Some companies use the same as cash deal because they want to move product. Some do it because they want to trick you with financing. Bottom line is, you better read the contract.

I too am a full-monthly-statement-balance payer and I received a balance transfer offer from my credit-card company. This one was quite different frommany others that I have read about on this forum.

I could do a balance transfer for any amount up to $Xfrom another credit card, or use the enclosed "checks" to pay some other (non-credit-card) bills,and I would not have to pay any interest for 12 months on the amountthus borrowed. But,

  • There would be a 2% service charge on the amount I was borrowing. Thisamount would be billed on the next monthly statement, and it would haveto be paid in full by the due date of that month's payment, that is,within the 25-daygrace period allowed for payment of monthly statements. Else, interest wouldstart being charged on the unpaid part of the service charge at the usualhumongous rate of H% per month.

  • If I had not paid the previous month's balance in full, I wouldbe charged interest at H% per month on the service charge starting fromDay One; no free ride till the due date of the next month's statement.Of course, the balance carried over from last month would also be chargedinterest at H%.

  • If I had paid last month's bill in full, but there were any othercharges (purchases) during the current month, then unless the entire amount due, this month's purchases plus servicecharge and that "interest-free-for-twelve-months loan" balance was paid off within the 25-day grace period, my purchases wouldbe deemed unpaid and would start being charged interest.

In short, the only way to avoid paying interest on the amount borrowedwas to start with a card showing a $0 balance due on the previousmonth's statement, not make any charges on that card for a wholeyear, and pay off that 2% service charge within the grace period.It might also have required that one-twelfth of that interest-freeloan be repaid each month, but I had stopped reading the offer at this point and filed it in the roundcircular file.

In short, while @JoeTaxpayer's tale of how "As a pay-in-full user,I've used the zero rate to throw $20K at the 5.25% mortgage" isundoubtedly how things worked once, it is not at all clear thatthey still work that way. At least, they don't work that way forme. Heck, once upon a time, for a period ofabout 3 months, you could earn 1.5% interest per month fromthe credit card company by overpaying your credit card billconsiderably. Their computers then just "added on" 1.5% interestby multiplying your credit balance -$X by 1.015 and so yougot 1.5% per month interest from the credit card company. The credit cardagreements (and the software!) got changed in a hurry, and nowdaysall credit-card agreements state in the fine print that if youoverpay your bill, you don't earn any interest on the overpayment.