Some of the best credit cards on the market offer a long 0% APR introductory period that gives consumers the chance to finance costly items without interest. MONEY’s Best Credit Card for large purchases, the Citi Simplicity, offers 0% interest on purchases for the first 21 months, meaning you could cover a $5,000 payment with monthly installments of $240. But that consumer-friendly benefit may be disappearing soon.
Late last year the Federal Reserve raised short-term borrowing rates for the first time in nearly a decade, by a modest 0.25%. The result on the APR that issuers charge on revolving credit card debt is expected to be minimal. NerdWallet estimates that a household with a debt of $15,000 can expect to pay about $125 more over five years. But one side effect may be that credit card companies will be less generous with 0% interest offers.
“As the Federal Reserve moves away from 0% interest rates, credit card issuers will do the same,” says Bankrate.com’s Greg McBride. “As interest rates rise, offer periods will get shorter, the promotional rates will move higher, or both.”
McBride notes that while 0% offers weren’t as prevalent a decade or so ago, “those that did exist quickly evaporated as interest rates rose from 2004 to 2006.” Citi has no plans to change the Simplicity’s intro APR period, according to a company spokesperson.
Deferred-interest cards are facing other pressures as well. The Consumer Financial Protection Bureau released a report on the implementation of the Credit Card Accountability Responsibility and Disclosure (CARD) Act last month in which the agency labeled these types of cards an area of concern. “Deferred-interest products remain the most glaring exception to the general post-CARD Act trend toward upfront credit card pricing,” the report noted. Consumers with low credit scores end up paying a high interest rate if the debt isn’t paid off at the end of the introductory period.
If you can’t pay off the balance in time, these aren’t the cards for you. But for now, at least, responsible credit card holders who sign up for a card like the Citi Simplicity with a plan—and the discipline to stick to it for 21 months—shouldn’t be scared off. (An added benefit: the Simplicity doesn’t charge an annual or late payment fee and won’t raise your rates if you are tardy paying your bill.)
While long introductory periods may become a thing of the past, interest-free offers are unlikely to disappear anytime soon, says NerdWallet’s credit expert Sean McQuay. “Raising to anything above 0% loses a lot of the marketing appeal of the category.”