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What You Should Know About “Introductory” APRs

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An introductory interest rate is often called a “teaser” rate. The promise of 0% interest for a period of time can be very enticing and might “tease” you into applying for the card.

A lot of cards these days offer introductory APRs. Some credit cards are even offering them on both purchases and balance transfers. When considering these offers, you need to pay close attention to two things: the length of the offer and the “go-to” rate. The go-to rate is the APR you’ll be paying after the intro period ends.

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I think an example always helps, so let’s take a look at a card that has a good intro APR offer: The Citi Platinum Select MasterCard. The credit card agreement (specifically, the rates and fees located inside the Schumer Box) shows that you get a zero percent introductory APR for 21 months. After that, your APR will be 11.99 percent, 16.99 percent or 20.99 percent (V) APR, depending on your creditworthiness. You get these same terms for a balance transfer.

Okay, so you now know how long your intro rate is and that you’ll get a go-to rate of 11.99 percent, 16.99 percent or 20.99 percent (V) APR. Mark the date that your intro rate ends on your calendar so you aren’t taken by surprise if you revolve a balance after the intro rate ends. It would be a bummer to buy a $1,200 HDTV with your card and find out later that you’re paying a (V) APR of 20.99 percent on the purchase. The length of the intro period varies by card, so read the terms and conditions carefully. Most of the intro APRs I’ve seen recently range from six months to 24 months.

These introductory APRs can be a great way to save money. But it’s essential that you make timely payments or you might get stuck with a penalty rate that’s often as high as 29.99 percent.  In many credit cards’ terms and conditions, I frequently see a note like this: We may end your introductory APR and apply the Penalty APR if you make a late payment.

That sounds as if the issuer can slap you with the penalty rate if your payment is a day late, doesn’t it? The Credit CARD Act of 2009 specifically prohibits an interest rate increase unless you’re more than 60 days late with a payment. There was some question about whether the law included intro rates. Thankfully, the the Federal Reserve recently confirmed that introductory rates are covered by the CARD Act.

[Related article: Fed Closes More CARD Act Loopholes ]

So if you’re late with your minimum payment but you pay it within 60 days, the issuer can’t take away your intro rate. If you think you’ve unfairly lost your promotional rate, call your issuer.

Image: Andres Rueda, via Flickr

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