Credit Card Introductory Rates Explained
Credit cards with introductory rates are some of the best credit cards to have. An introductory rate is a low interest rate (sometimes even a 0% interest rate) that applies to your balance for the first few months after you open your credit card. Introductory rates are most often given to applicants with good or excellent credit scores.
Introductory rates may apply only to a certain type of balance, for example, only to purchases or only to balance transfers. But, many credit cards apply the introductory rate to both purchases and balance transfers.
Cash advances rarely get an introductory rate, if ever.
You may have to make the balance transfer within a certain time frame or by a certain date (usually within the first 30-60 days of opening the credit card) to receive the introductory rate. Balance transfers made after that date may be charged interest at the regular balance transfer rate.
How Long Does an Introductory Rate Last?
By law, introductory rates must last at least six months, but may be longer than that depending on the credit card. You may see credit cards with introductory rates for 6 months, 12 months, even as much as 21 months. Twenty-one months is an exceptionally long balance transfer timeline for the industry. A credit card that offers such a generous time frame for 0% introductory rate is the Citi Simplicity. Obviously, the longer the better since it means you have more time to enjoy the promotional interest rate.
The credit card issuer may state the introductory period in months or billing cycles. Note that because a billing cycle is typically shorter than a calendar month, a 12-billing cycle introductory rate is actually shorter than 12 months. For instance, on a credit card with a 27-day billing cycle, a 12-month introductory rate would actually last 10 months and about 3 weeks.
When you accept a credit card with an introductory rate, make sure you pay attention to the length of the introductory period. That way, you can focus on paying off your balance before the introductory period ends.
The Benefit of an Introductory Rate
Introductory rates are attractive because they allow cardholders to pay less in finance charges than they would on a credit card with a higher interest rate. Large balances with high interest rates are great candidates for moving to a new credit card so that your monthly payment goes toward reducing the credit card balance, not just toward interest. You might also use an introductory rate to make and pay off a large purchase with no interest.
Introductory rates are typically very low, ranging from 0% to 4% for 6 months up to 21 months. Cardholders can best take advantage of an introductory rate by paying off the credit card balance before the rate expires.
Once you're approved for a credit card with an introductory rate, note which balances receive the rate and the date your introductory rate will end. Mark the end of the introductory period on your calendar so you can be sure to pay off your balance before the introductory rate expires.
Credit card issuers generally reserve credit cards with introductory rates for applicants with better credit scores.
If you're trying to pay off a balance transfer under a 0% interest promotion, divide the balance by the number of months in the introductory period so you know the payment you need to make to pay your balance. For example, to pay off a $4,000 balance under a 13-month interest promotion, you need to pay about $308 each month.
How You Could Lose Your Introductory Rate Before It Expires
Your introductory rate can expire prematurely if you're more than 60 days late on your credit card payment. If that happens, your credit card interest rate may increase to the penalty rate, which is the highest interest rate charged on the credit card.
Unfortunately, once you've lost your introductory rate, you may not be able to get it back. And the recent late payments will go on your credit report which may prevent you from qualifying for an introductory rate on another credit card.
You can set up automatic payments for the minimum payment to avoid a late payment. You can always make an additional payment above the minimum at any time.
Introductory Rates vs. Deferred Interest
There's a type of interest rate promotion that can easily be confused with an introductory rate. Many stores offer a deferred interest plan that allows you to pay no interest on purchases for a certain number of months. But there's a catch. You must pay off the full balance of the promotion before the promotional period ends. If any of the balance remains when the promotional period expires, you'll be retroactively charged interest from date of the purchase.
Credit Card Life After the Introductory Rate
You can still use your credit card after the introductory rate expires. New balances and any balance you haven't paid by the time your rate expires will be charged interest based on the regular APR. Because you're paying more interest on your credit card, your payments won't have the same impact on your credit card balance. Therefore, if you want to pay off your balance after the introductory rate expires, you'll have to increase your monthly payment.
However, paying your balance in full each month lets you avoid paying finance charges on purchases and balance transfers.