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How Introductory APRs Work

Taylor Leamey

Feature Writer

5 min. read

What Are Introductory APRs?

As a way to reward you for opening a new card, credit card companies often offer an introductory APR for a set period. It can be as low as 0%, which is a great incentive if you carry balances on your credit cards. Introductory APRs generally last anywhere from six to 18 months and are given to those who have good credit scores.

Depending on the card, an introductory APR can apply to purchases, balances transfers, or both, so some charges may still be subject to interest even during your introductory period. For example, let’s say you take advantage of a balance transfer, but your card’s introductory rate only applies to this type of transaction. Any new purchases you make on the card will be subject to the ongoing interest rate. Your card’s Schumer box will detail all of the terms, fees, and details of your introductory APR. It’s essential to understand what your card offers to make the best use of your introductory period.

When Should You Use Introductory APRs?

Paying down debt

Taking advantage of an interest-free period is an attractive offer that allows you to pay less in finance charges. For those who need to pay down debt on a high-interest credit card, a balance transfer to a 0% APR card allows you to make payments to your principal balance without having to worry about interest, giving you a way to pay off your debt faster. Many new cards do require that you request a balance transfer within a certain amount of time from when you opened the account. Keep that in mind if you plan to go down this avenue.

Buying big-ticket items

A card with a 0% introductory rate on purchases is a great way to finance a big payment. Instead of taking out a loan, opening an account with this perk takes away the stress of paying it off all at once to avoid interest. Instead, you can plan payments during the introductory APR period without adding to your total, which is the best option if you plan to pay off the balance before the period ends.

Things to Consider

Potentially high APRs

Introductory APRs will not last forever. Once the period of time is up, you will pay the card’s normal APR on any remaining balance and new purchases. Consider a card with a long introductory period if you think you will need that extra time to pay off the entirety of your balance.

Your introductory APR also isn’t promised for the stated time period. You can forfeit your promotional period if you fall behind on your payments or exceed your credit limit. If you are 60 days late on your payments, your card provider could increase your interest to the penalty rate, which is the highest interest rate possible. Once you lose your promotional rate, your balance and purchases will be subject to the ongoing rate from then on.

Credit utilization

An introductory APR is a powerful financial tool that should be used wisely. There are ways to go wrong and damage your credit by entering into a new card just to score a competitive rate. Carrying a high balance on your credit cards is a common way to impact your credit score and potentially cost you money in the long run.

Your credit utilization ratio is the amount of your credit line that is already accounted for. Think of it as the sum of all of your credit balances divided by the sum of your credit limits: If you have a total of $600 owed and a total credit line of $2,000, then your credit utilization ratio is 30%. Adding more purchases to your account will cause that ratio to increase. The goal should be to keep your ratio as low as possible; an introductory APR can help with that.

Deferred interest

While it may look like an introductory period, deferred interest is drastically different. It’s important to know the difference and enter knowingly into one or the other. Like an introductory APR, there is an interest-free time period, though the interest is accrued differently. With deferred interest, interest is calculated for every day you have a balance on your card. It just isn’t required until after the promotional period ends. Once the set time period is up, you’re retroactively charged for the interest that accrued. The only way to prevent paying interest, in this case, is to pay the entirety of your balance before the time period is up.

How to Maximize Savings

Compare your options carefully

Many credit cards offer an introductory period, and while it might seem like they are offering the same thing, the terms of each card will vary. When considering which to go with, read the terms and conditions carefully to prevent any surprises down the line. This is the only way to ensure that you choose what best fits your needs. Additionally, some cards may have additional charges like an annual fee or a balance transfer fee. With this in mind, you should consider how much you would be saving before taking an offer and make sure the associated fees don’t outweigh it.

Never fall behind on payments

If you’re late on payments, you’ll lose your introductory APR period. Making the minimum payment is a requirement for credit cards. Not only does making payments keep you from violating your promotional period, but it shields you from any late fees your credit card issuer may charge. Late payments do go on your credit reports, which can make you a risky option for lending in the future.

Pay off your balance

Paying off your balance is the goal for most people when opening a new credit card with an introductory APR period. To maximize and avoid interest, you should pay your balance in full before the promotional period ends. It’s important to note that your credit card company will not send you any sort of reminder for when it ends, so mark your calendar or set a reminder on your phone. If you’re nearing your deadline and still carrying a balance, consider increasing the payments you make to account for it.

The Bottom Line

An offer of 0% APR is a selling point for many credit cards and a great financial tool to use. The idea is simple, but there is more to it than it seems. Before you commit, make sure you carefully read the terms and conditions of the new card and you understand any upcoming fees.

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