0% APR Credit Cards: How Do They Make Money?

March 11th, 2009

0aprIt’s easy to figure out that credit card companies make their money on interests incurred every time you make a purchase with your card, along with the host of fees they charge you for its use. But how exactly do those attractive 0% APR credit cards make their bank?

While it may look like they’re letting you use it at absolutely no benefit to them, issuers are definitely going to make money from the deal. Here’s how:

Annual Fees

Many 0% APR credit cards carry stiff annual fees for the privilege. Charges of $20 or higher are typical. For the benefit of zero interests on your purchases, however, it doesn’t sound like that bad of a deal.

Limited Periods

Most 0% APR credit cards today only offer the interest-free APR for a limited time, usually between six months to two years. After the fixed term, APR jumps up to a more regular number.

Late Payments

Credit companies count on the reality that you will sometimes come up late on your payments. When you do, get ready to start paying. Apart from late fees, which can go as high as $40, many 0% APR credit cards include a default rate in their terms and conditions. Once you miss a payment, you the lose the privilege of a 0% APR card. Even worse, the new rate usually covers all your existing balances.

noel Posted in Credit Card Guides

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