Q & A: How Do Credit Card Introductory APRs Work?

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Question: How Do Credit Card Introductory APRs Work?

First, let's talk about what "APR" stands for. This acronym stands for "annual percentage rate." The annual percent rate incorporates both the interest that you're charged and the other costs like annual membership fees. It's expressed as an interest rate to make comparing offers with different rates and fees. Put simply, the APR is the yearly cost of credit, expressed as an interest rate.

The "Teaser" Rate

An introductory APR is sometimes called a "teaser" rate, because the allure of a card with zero percent interest for a period of time might "tease" you into filling out an application. There are two types of zero percent introductory APRs: purchase APRs and balance transfer APRs. With purchase APRs, you might see an offer that gives you a zero percent introductory APR on purchases for a limited amount of time.

For example, you might see an offer for a card that has a zero percent introductory APR on purchases for 12 months. This means that if you have a balance on the card when the intro period ends after 12 months, you'll be paying interest on this balance at the "go-to rate." The go-to rate is the ongoing purchase APR that you qualified for when you applied for the card.

Balance transfer cards also offer a zero percent introductory APR. You can transfer a balance on a high-interest card to a balance transfer card and pay down your debt with no interest for a period of time, usually between six and 18 months. This means that if you have a balance on the credit card when the intro period ends, you'll be paying interest on this balance at the go-to rate for purchases.

When you decide to get a credit card with a teaser rate, you need to be aware of the date that the introductory period ends so you don't get stuck paying interest on your balance. If you want to apply for a balance transfer card, you need to read the fine print carefully so you know the terms of the offer.

Terms and Conditions: Watch Out!

Review the "Terms and Conditions" (also called "Rates and Fees" or something similar) online for the card and find out if there's a transfer fee. Transfer fees average around three percent of the total amount transferred. Balance transfer offers usually have a time limit. For instance, you might have 60 days to complete the transfer before the offer expires.

If you do get a card with an introductory rate, be aware of the circumstances that could cause you to lose this rate. Every card issuer spells this out in the fine print and terms vary by card. In general, paying your bill late might not only make you lose your introductory rate, but it can also trigger a penalty rate -- and the average penalty rate in the US is about 30 percent! Don't let this happen to you. Make your payments on time and take advantage of the opportunity that an introductory rate offers.

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