When searching for an appropriate credit card, there’s plenty to take note of to ensure you get what you’re looking for. Or better yet, what you need.
One of the most important features of a credit card is the APR, or annual percentage rate. Put simply, the APR is the interest rate for your shiny piece of plastic.
This number determines how much you’ll pay in interest, assuming you don’t pay off your credit card balance in full each month.
Failure to do so will lead to finance charges, assuming the APR is above 0%, which it always is unless it is “promotional APR.”
So if your credit card APR is 20% and you carry a balance, you’d pay $20 for every $100 you charged (using basic math). Yikes!
Yes, credit card interest rates are sky-high, which is why you should never carry a balance if you don’t have to.
Introductory APR Can Lead to Big Savings
Many credit card issuers offer promos to get us in the door, with cash back rewards and “introductory APR” probably the biggest draws.
The reward stuff is pretty self-explanatory, but what about the intro APR? What’s that all about?
Well, as the name implies, it is an interest rate that is offered on a promotional basis for a certain period of time when the credit card is opened.
The most common variety are 0% APR credit cards, which tend to be offered for 12 months.
However, Citi and Discover also have some offers for as long as 18 months.
And there was a time not too long ago when some card issuers offered 0% APR for a full 24 months!
0% Intro APR on Purchases
The introductory promotional APR can be further broken down into “purchase APR” and “balance transfer APR,” which are also important distinctions.
If the credit card offers 0% introductory APR on purchases, it means you won’t be charged interest on any purchases made during the promotional period.
So if a credit card comes with 0% APR for 12 months, you can make purchases and carry a balance without worrying about finance charges (interest) stacking up for an entire year.
After the intro APR “runs out,” so to speak, you’ll either need to pay off your entire balance in full or face costly finance charges.
A credit card that offers introductory 0% APR on purchases may be a good choice for someone who wants to purchase a high-ticket item, but doesn’t have the cash on hand at the time of purchase. Or simply want to put off paying it for a while.
Think a new computer, TV, or some other pricey item you may want to purchase now, but pay off slowly over the next year.
You could buy a TV for $2,400, and make $200 payments each month for a year without paying a dime in interest.
For the record, the store selling the TV would probably offer a similar financing deal, but such offers are notorious for being a rip-off once the intro APR period ends.
0% Intro APR on Balance Transfers
With regard to balance transfers, 0% APR is often the main draw of executing one.
So a credit card issuer will offer new customers 0% APR if they move their existing credit card debt to them.
For example, if you have a $3,000 credit card balance with Chase, Citi or another card issuer may try to tempt you with a 0% APR balance transfer.
If you take them up on the deal, your APR on the transferred amount would be 0% during the introductory period.
This means you wouldn’t have to pay any interest during that time, but once the 0% APR expired, the balance would be subject to the purchase APR.
This is “where they get you.” Their goal is to eventually have you carry a balance with them instead of your previous credit card issuer, and pay them interest.
These 0% APR balance transfer credit cards are great for those who have high-APR credit card debt, as it gives you time to pay it down without interest piling up.
Good or Evil?
In summary, intro APR is a great marketing tool for the credit card issuers and also a good way for cardholders to save some money.
But it can also be a trap and lead to overspending. After all, the credit card issuers aren’t stupid, and sure as heck aren’t giving away free money.
They must be winning or such offers wouldn’t exist. So make sure you know what the APR is (or will be) in all situations to avoid any unwanted surprises. And never spend beyond your means.
If you stay on top of your finances you can save money with these offers and even pay down your debt in the process.
Most things aren’t inherently good or bad; they just need to be approached responsibly.
Read more: Pros and cons of credit cards.