Why do banks offer 0% APR credit cards?

Credit card companies generally make money off of fees and interest. So it’s understandably confusing that they would sacrifice the interest part of the equation, if only for a limited time, especially since most 0% cards don’t charge annual fees. But there are three main reasons why banks and credit unions offer 0% APR credit cards:

1. To entice new customers. Zero percent intro rates are eye-catching, and banks can market their other products to new cardholders in order to make money.
2. To encourage more spending. Credit card companies make money from so-called interchange fees every time you make a purchase. And the more debt you rack up, the less likely you are to repay your full balance within the 0% term.
3. To make money from interest. This might seem a bit counterintuitive, but issuers know that many people will carry a balance for longer than their 0% intro rate is available. And that’s when they hit you with a high regular APR. The current average is 17.86%. In other words, credit cards with no interest whatsoever don’t actually exist.

These reasons also help to explain why credit cards don’t have permanent 0% rates. And the fact that issuers offer 0% APRs to make money, not just out of the goodness of their hearts, is why you should always be on the lookout for hidden costs and deals that seem too good to be true.

“If consumers actually routinely borrowed at 0% without paying any fees or interest, it would be difficult for credit card companies to earn a profit on these deals,” said Michael Simkovic, an associate professor at the Seton Hall University School of Law who studies the credit regulations. “Customers just really have to read the fine print, compare the total cost of borrowing the amount they need for the time they need it (including interest and fees) and be very, very careful.”