What Is an Intro APR and How Does It Work?
Explore what an intro APR is and how these promotional, temporary interest rates on credit cards function.
An Annual Percentage Rate (APR) represents the yearly cost of borrowing money through a credit product. For credit cards, it is the interest rate charged on balances carried over from month to month. An introductory APR is a temporary, special interest rate offered by credit card issuers, often significantly lower than the standard rate. This promotional rate is designed to attract new cardholders for a limited time, typically ranging from six to 21 months. During this period, the interest rate on qualifying transactions is usually very low, often at 0%, allowing new customers to transfer existing balances or make new purchases without immediate interest accrual.
Understanding Introductory APRs
An introductory APR is a promotional rate that credit card companies offer for a limited time, typically ranging from six to 21 months. During this period, the interest rate on qualifying transactions is usually very low, often at 0%. Credit card issuers use these offers to entice new customers, encouraging them to transfer existing balances or make new purchases without immediate interest accrual. This temporary relief from interest charges can be beneficial for managing finances or financing larger expenses.
Types of Introductory APRs
Two common forms of introductory APRs are offered. A 0% purchase APR applies to new purchases made with the card. This allows cardholders to pay for items over several months without incurring interest, provided the balance is paid off before the promotional period ends.
Another type is the 0% balance transfer APR, which applies to debt moved from other credit cards to the new card. This enables individuals to consolidate high-interest debt and pay it down without interest for the introductory period. Balance transfers typically involve a fee, often ranging from 3% to 5% of the transferred amount, which is added to the total balance. For example, transferring $5,000 with a 3% fee would result in a new balance of $5,150.
After the Introductory Period
Once the introductory APR period concludes, the interest rate on any remaining balance and new transactions reverts to the card’s standard variable APR. This post-promotional rate can be substantially higher than the introductory rate, sometimes exceeding 20%. The specific standard APR is determined by factors such as creditworthiness and is outlined in the cardholder agreement. Cardholders should monitor their statements or online accounts to know the exact end date of the promotional period.
Important Considerations
Even with a 0% introductory APR, cardholders must make at least the minimum monthly payments on time. Failure to do so can result in late fees and may lead to the forfeiture of the promotional rate, causing the standard APR to apply immediately.
Some financing offers, particularly from retail stores, may involve deferred interest rather than a true 0% APR. With deferred interest, interest accrues from the original purchase date, but it is only charged if the full balance is not paid off by the end of the promotional period. If any balance remains, all the deferred interest from the beginning of the period becomes due. Most general-purpose credit cards with 0% introductory APRs do not operate this way, only charging interest on the remaining balance after the promotional period ends.
Applying for a new credit card can lead to a temporary decrease in a credit score due to a “hard inquiry” on the credit report. However, responsible use, such as making timely payments and keeping balances low, can positively impact the score over time. The impact of the hard inquiry typically lessens within a few months.