There are a lot of credit card promotional rates in the market available to consumers. There are so many choices that many get confused and overwhelmed. Some credit card companies have also taken advantage of consumers by luring them into deals that aren’t always clear and fine print that isn’t easily understood.
Like all financial products and purchases, you should choose a new credit card with a promotional rate that serves a purpose. Do you need to transfer balances amongst cards? Do you need to consolidate your credit card debt? Are you look to save travel reward points or airline miles?
Promotional interest rates for credit cards can be a great tool to help you take better control over your finances and save money. But, you have to be careful with the deals you sign up for and read the fine print for credit card company’s promotional interest rates. There are often a lot of stipulations that you should be aware of before you sign on the dotted line.
Understanding the Fine Print
There’s a lot of fine print that’s associated with introductory interest rate offers from credit card companies. There are terms such as introductory rate, introductory period, and balance transfer fees that you should understand as well.
The introductory rate is the initial low rate, which may be even 0%. The introductory rate is what credit card companies use to lure you to them with either a new card or a balance transfer. An introductory rate may also eliminate or significantly reduce your monthly finance charges, which can help you pay off your credit card balances faster. Typically, the introductory rate is only good for a certain period.
The introductory period is the amount of time that your new, low rate lasts. The low requires credit card companies to maintain promotional interest rates for at least six months. But, consumers with good credit can often find introductory interest rate promotions that can last as long as 18 or 24 months.
Balance Transfer APR
You should look at the balance transfer APR that takes affect once the introductory period expires. In some cases, the balance transfer APR may be the same as your regular purchases APR. You’ll want to take specific note of what your new rate is after your promotional interest rate period ends.
Balance Transfer Fee
Most credit card companies charge consumers a balance transfer fee in addition to their introductory offer. Balance transfer fees can range from 3% to 5% of the amount you transfer to your new credit card. Be sure that you consider this fee when applying for a new credit card. You don’t want the balance transfer fee to eat up the amount of savings that you’ll enjoy with the new introductory offer.
Interest Rate Promotions Can Be Deceptive
The federal government often warns credit card companies against deceptive marketing of their interest rate promotions. The credit card companies often use interest rate promotions to lure consumers with zero or low-interest rates if they switch credit cards. Then, they often hit card users with surprise interest charges after a certain amount of time or if they’re late with a payment.
The Consumer Financial Protection Bureau, or CFPB, put credit card issuers on notice about clearly disclosing the costs and risks of the interest rate promotions they market. The CFPB wants consumers to fully understand what they’re signing up for when they get a low credit card interest rate on specific purchases or balance transfers from another credit card.
“Credit card offers that lure in consumers and then hit them with surprise charges are against the law,” said CFPB Director Richard Cordray in a statement. “Before they sign up, consumers need to understand the true cost of these promotions…We are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.”
What to Watch Out For
Under the marketing of interest rate promotions such as balance transfers, deferred-interest offers, and convenience checks, some consumers are often charged a fee to transfer a balance. Or, credit card companies charge them a fee to make a purchase with their credit card to receive an interest rate promotions on that amount for a set period of time, according to the CFPB.
Interest Rate Promotions Can Be Expensive
Interest rate promotion can be an expensive surprise. While consumers pay little or no interest for balances they transfer thanks to the promotion, any additional purchases they make with the credit card may incur interest charges immediately.
The CFPB says some companies don’t clearly disclose that customers must pay off the promotional balance by their due date to avoid racking up unexpected interest charges on routine purchases for which the credit card companies hadn’t previously charge interest. These surprises can make the cost of transferring a balance more expensive than revolving the same balance on their existing card.
These tactics impact consumers who enjoy an interest-free “grace period” on their credit card purchases. Credit card users who pay off their total credit card balance each month receive a grace period where they don’t have to pay interest on purchases.
But when they carry their promotional credit card balance past their payment due date, consumers can lose their grace period. And, credit card companies can charge customers interest on all new charges. The only way for them to avoid interest charges on new balances is to pay off their whole statement balance, including the interest rate promotion balance and the new purchases, by their monthly billing due date.
The CFPB raised concerns in October 2013 in a report on the CARD Act about consumer understanding surrounding credit card grace periods and whether there are appropriate consumer disclosures. The CFPB found that some companies failed to adequately explain the terms of certain interest rate promotion offers, leaving consumers confused about why they’re incurring new interest charges on their purchases.
How to Choose Good Interest Rate Promotions
There are several consumer tips about interest rate promotions that consumers should consider before accepting such a promotional offer.
Avoid the interest
Consumers who do not carry a balance can take advantage of promotional rates and avoid unexpected interest if they don’t make new purchases with the card until they pay off the entire balance. To avoid interest charges on new purchases, consumers should consider paying with cash, debit, or another credit card that doesn’t have a balance.
Make payments on time
Consumers should make payments on time to avoid surprise charges on cards with new promotional offers. For promotional and deferred interest balances, consumers should pay off the entire balance before the end of the promotional period.
Compare the interest rates
Consumers that carry a balance on all their credit cards should compare the interest rates among their cards to decide which is the best deal for new purchases. You should also consider paying for new purchases with cash or debit.
It can be confusing and overwhelming with the amount of credit card promotional interest rates available to consumers. There are so many choices that many get confused and overwhelmed. Do not be lured into deals that may seem too good to be true. You should always read the fine print and understand the details of your credit card agreement. It is especially true if you’re taking advantage of an introductory interest rate promotion or a balance transfer deal.