Do you get offers for 0% introductory APR cards in the mail?
What are they? And how can you get the most out of them?
Learn the answers from credit expert, John Ulzheimer.
Hi. My name is John Ulzheimer, and I’m a credit expert who contributes to ibisconsultants.info. If you have any questions for us then please submit them in the comments section below. Today’s question comes from YouTube user Adriana “Adri” Vargas. Her question is this…
What is a intro APR?
She would also like me to talk about the difference between an intro APR and a regular APR. And then purchases made under both the regular or the intro APR.
So first off, the APR is the annual percentage rate. So in other words it’s the interest rate you’re gonna pay if you do choose to carry a balance on your card from 1 month to the next. If you pay your balance in full every single month and you never carry a balance forward, you don’t need to worry about the APR, because you’re not paying interest, so there’s nothing to apply interest rate to.
Most credit card issuers today issue rewards style credit cards. And one of those types of rewards cards is the 0% interest APR card. And most credit card issuers are marketing those to consumers who have debt on other cards. And their marketing them as balance transfer options.
So if you have a balance on one of your cards, you may get offers from another card issuer saying, “Hey! Transfer that balance from that other card to our card, we’ll give you an intro APR of 0% for 12 months, 18 months, whatever, and you’ll also get 0% APR on new purchases. So essentially it is a bonus annual percentage rate, of some very low, in many cases, 0% structure, which is an incentive for you to do business with them.
Now, the reason this is called an intro or an introductory APR, is because it’s not going to last forever. Obviously a credit card issuer is in business to make money. And one of the ways they make money is by charging you interest on the debt that you carry from month to month. So they have to eventually change your APR from the intro APR of 0% to something greater than 0%.
And that APR is what’s commonly referred to, and in Adriana’s question, is what’s referred to as kind of a regular or persistent interest rate. That interest rate is obviously going to be set based on the credit quality of the applicant. But generally speaking, it’s going to fall in the 15 to 16% range, although that can vary greatly in either direction. But generally speaking, 15% is a good target or expectation.
If you make purchases under the intro APR, meaning that you make a purchase at 0% APR, the APR on that particular purchase cannot go up, unless you do something like start missing payments. If you start missing payments, then the credit card issuer can asign a higher interest rate retroactive, meaning that they can retroactively change the interest rate on purchases that you’ve already made.
But generally speaking if you continue to make your payments on time, then all the purchases you made on under the intro APR will be priced out at the intro APR. And remember, this is only relevant to the point where you actually use the card long enough that the APR actually expires.
The regular APR, let’s just say hypothetically that that’s 15%, any purchases made when that particular APR adjusts to the new regular interest rate, any purchases made under that, at that period of time will be priced out under those particular terms. So it’s something to keep in mind, because you may start getting credit card statements after you’ve had the account for awhile, that actually have variable purchases under variable interest rates. One is the intro. One under the regular APR.
Another thing to keep in mind is, there may be language in your cardholder agreement that allows the credit card issuer to charge you interest retroactive to the day that you opened the card if you have not paid off the balance transfer in full. This is going to be very expensive if this is applicable to your card and you don’t take care of it.
So let’s say you get an intro APR at 0% for 12 months, and you transfer $10,000 to that card. And then for 12 months, you have no interest on that $10,000. If you don’t pay that $10,000 off by the time 12 months expires, and your grace period of 0% APR expires, they’re gonna hit you with interest all the way back to the first day that you opened your account, on the entire amount.
So be very careful when you’re using these types of cards. The expectation is that right now there’s no interest. But going forward, there absolutely can be. So you’re going to want to work very diligently to payoff that card as quickly as possible, before the intro APR expires.
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