What is an Introductory APR on a Credit Card? 

Want to borrow money for purchases and then revolve balances without any finance fees added to the amount you owe? How about transferring an expensive existing debt to a new credit card that won’t charge you any interest for a specific period? 

Welcome to the world of credit cards that offer introductory APRs. These time-sensitive deals can save you a lot of money when you use them correctly while helping other aspects of your financial life.  

Before applying for a credit card with a promotional 0% APR, understand how introductory rates work, what to look for in an account, and how to effectively manage the one you get.  

Every credit card issuer eventually imposes an annual percent rate (APR) on carried-over balances. They usually have different APRs for the same account, such as a regular rate for purchases, a higher rate for cash advances, and a penalty rate if you fall behind on payments. 

Many credit issuers also offer a 0% APR when you first open the account, which lasts for a few months. 

Why Credit Card Issuers Offer the Promotion

The credit card business is highly competitive. Many cards are available to consumers at any given time, so issuers are constantly looking for new customers. If they can entice you to open an account by offering an introductory APR, chances are you will stay with the company and continue to use the card long into the future. 

Many cards allow you to use the introductory APR for purchases or balance transfers, which can be an effective way to consolidate debt.

Therefore, introductory rate cards are a terrific deal for you, and if everything goes according to plan, the credit card issuer gets a great new customer. 

Don’t credit card issuers lose money on the arrangement? No. Although these companies profit from the interest you pay when you revolve debt from one month to the next, they also earn revenue from transactions. Every time you charge, the merchant you purchased from will pay the credit issuer interchange fees, typically ranging from 1% to 3% of the amount you spend. 

Typical Length of the Promotional Period

Remember, a promotional APR is not built to last. By federal law, introductory APR periods must last at least six months. Typical offers are 12 months, but 15- and 18-month options are also available. Some deals can be as long as 21 months.

There are introductory-rate credit cards for people with various credit ratings, but to qualify for a card with an especially long promotional period and other valuable perks and benefits, you will need to have good to excellent credit and a positive financial position. 

Common Types of Intro APR Offers

Two basic variations of credit cards offer promotional APR deals:

• 0% APR on Purchases: With this type of card offer, you can charge purchases, and as long as you make the minimum monthly payment on time, any debt you move onto the next month will be free of any finance fees. After that period ends, the regular APR will go into effect, and any remaining debt will start to accrue interest.  

• 0% APR on Balance Transfers: The credit card issuer will absorb existing debt and not charge any interest on that amount during the introductory period. Almost all will charge an initial fee, typically between 2% and 5% of the transferred sum, and is added to the balance. If you make purchases with the card, the issuer will assess interest on any amount you don’t pay in full. 

Some credit card issuers offer accounts with an introductory 0% APR on transactions and balance transfers. These cards can be very compelling, but they tend to be offered only to people with excellent credit ratings. 

It’s hard to find fault with credit cards with 0% introductory APRs. In most cases, when you handle them correctly, they can work to your advantage. There are some downsides, too, so know their pros and cons before you enter into one of these agreements. 

Benefits

• Cost Savings: When interest fees aren’t added to a revolved balance, you can save a lot of money. As long as you repay the debt before the regular rate goes into effect, it won’t cost you anything extra to pay over time. 
• Smaller Payment: Credit card payments are determined by the size of the debt. When the bill increases, so does the payment. You may have smaller minimum payments since finance fees aren’t increasing the balance. 
• Debt Consolidation: If you are burdened with multiple accounts, consolidating most or all of them into one credit card with a balance transfer can simplify your life. 
• Financing Large Purchases: You may want to buy something very expensive and pay it off in installments. An introductory rate APR can be the perfect product. You will have what you want without spending your cash, and no financing fees will be applied if paid in full by the due date. 
• Reduces Stress: When you know you can’t pay a credit card bill in full because of an emergency, having a certain number of months where interest will not increase the size of your debt can be a huge relief. 

Drawbacks

• Low Credit Scores May Not Qualify: If you have had serious credit challenges, your scores may be too low to qualify you for one of these deals. 
• The Introductory Period Will Eventually End: It will be important to pay attention to when the introductory period ends. You can wind up with a substantial balance and a high APR if you don’t. 
• It’s Easy to Accumulate More Debt: Making purchases and then only having to pay the minimum payment can be seductive, but the result can be overwhelming debt.  
• Possible Fees and Penalties: If you do not make the minimum payment by the due date, most credit card issues will prematurely revoke the 0% APR deal. The rate will escalate to the penalty rate, which is higher than the regular APR. You may also be hit with late fees that will cause the amount you owe to rise. 
• Lower Credit Limit: The new card may not have enough credit limit to take on all of your debt. If you owe tens of thousands of dollars on other credit cards, it is doubtful that the balance transfer credit card will be able to absorb all or even most of it. 
• Deferred Interest on Most Store Cards: Be aware that retailers offering 0% deals on their credit products can differ from regular credit cards. If you do not pay every dollar you borrowed by the end of the promotional term, all the deferred interest will be assessed and added to your account. 

Because credit cards with introductory APR are so prevalent and come in a variety of forms, it will be important to review multiple offers before applying.

Compare Offers and Regular APRs

When seeking the right introductory APR credit card, you can go to each issuer’s website to see what they offer. This can be a long and laborious process,  so the easier approach is to review curated lists from reputable websites. 

Key factors to consider when evaluating offers:

• Length of Promotional Interest Rate: You may only want a credit card that offers 12 months of 0% APR, or you may need one with a longer timeframe. Check out how long each offer lasts, then consider all of its other features. 
• Eligibility Considerations: Some credit cards expect higher credit scores than others,
•  so look for one that best matches your creditworthiness. If you don’t know your credit score, find out before you begin the search. 
• What the Regular APR Will Be: Once the introductory rate is over, the ongoing APR will go into effect. If you plan on having a revolving balance in the future, look for the card that has the lowest regular APR.
• Rewards Programs: If you want a credit card that rewards you for using it, look for one that allows you to earn cash, points, or miles. As long as interest isn’t being added, you’ll come out financially ahead. 
• Sign-On Bonus: In addition to 0% APR, some credit cards will offer a significant reward bonus after you spend a certain amount of money within a fixed period.
• Credit Limit: Although you won’t know exactly how much of a credit line you are eligible for until you apply and are accepted, some credit cards with 0% introductory APRs tend to have more generous limits than others. If you need an especially high credit line, check out 0% APR cards known for high limits. 
• Perks and Benefits: Many credit cards come with valuable extras, such as complimentary baggage check at the airport, cellphone insurance, and extended warranties. Review the perks and benefits associated with the card to ensure it is right for your lifestyle. 

When you are ready to start applying, look for credit card issuers that offer online pre-qualification systems. By entering your basic personal and financial information, the issuer will conduct a soft credit check that will not hurt your credit score. If you qualify for any of its products, it will send you a list of potential cards. 

Identify Rewards and Benefits

Because the introductory APR window will eventually end, you should choose a credit card for its long-term benefits. For that reason, you will want to pick a card with a good rewards program. There are two basic types of rewards programs: 

• Cash Back: Cards that offer cash back are terrific because you earn a percent of what you spend. For example, you might get 2% back on all purchases with a fixed rate cash back card. A tiered card enables you to earn much more cash back on some purchases and less on others. 
• Points and Miles: Other credit cards reward you with their own form of currency, which could be in points or miles. You can redeem earned rewards for everything from flights to gift cards. Some even have shopping portals where you can buy merchandise. As with the cash back cards, the rewards for these cards may also be fixed or tiered. 

Be sure to read the terms of the agreement on the credit card issuer’s website and review the different clauses associated with the account’s rewards program. For example, you may get a higher redemption value when you use points for travel versus cash in the form of a statement credit. 

You will also want to know expiration dates, blackout periods for travel bookings, and anything else regarding how and when to redeem the rewards. 

Review all of the benefits that are associated with the card. Some focus more on travel, while others are designed for business, entertainment, dining out, or shopping. When you get a credit card that best suits your spending patterns, you can save money and enjoy all kinds of conveniences that make your life easier.

Make Sure it Aligns with Your Financial Goals

It can be tempting to grab the offer with the longest 0% APR introductory period, but before you apply, consider how it will fit into your lifestyle over the long term. That includes whether you plan to transfer any of your other credit card balances.

If you have other credit cards currently in rotation, find one that fills any gaps. 

For example, you may already have a cash back card, but don’t have a card associated with an airline that you often fly with. You may be starting a small business and only have personal cards. In that case, you should open an account that helps you with your new venture. 

When you receive your introductory APR credit card, you should use it systematically to get the most from this amazing deal. After all, not being charged any interest on things you buy or on costly debt is a gift you don’t want to squander. Here’s how to maximize the temporary 0% APR period. 

Plan Any Big Purchases

Create a payment plan during the introductory period. This is extremely important because you do not want to end up with an overwhelming balance with a high interest rate attached to it. 

• Do the Math: If you use the card to purchase an expensive item, calculate how much you must send every month to get out of debt before the temporary rate expires. Buy a $950 laptop with a 12-month 0% APR deal with your credit card? Steady payments of at least $75 will guarantee you won’t pay more than the initial price.
• Stay Aware: If you use the card for ongoing expenses, keep track of the balance and stop charging it before the actual rate goes into effect. Monitor your financial capability and ask yourself whether or not you can meet your goal of paying off the entire balance before the regular rate is in effect. 
• Avoid Future Debt: If you use the card for a balance transfer, calculate the amount you will need to send to be debt-free before the introductory period ends. Meanwhile, do not get into further debt on the credit cards you emptied with the transfer. This is your opportunity to return to positive financial footing, so only charge what you can afford to repay in full. 

Another terrific way to earn money with your new card is to time your purchases to coincide with the sign-up bonus if the card comes with one. 

Let’s say your card offers 15 months of 0% APR and will give you $200 in cash rewards after spending $500 in the first three months of opening the account. That’s your chance to consider what you need to purchase that is at least the same as that minimum spend. 

It could be a bicycle with a price of $500. Perfect! Buy it with the card soon after you are approved, and it will only cost you $300 when the cash back hits your account. After that, you have more than a year to pay incrementally without any financing fees increasing the cost. 

Stay Organized and Pay on Time

Credit cards that offer promotional interest rates must be managed carefully. The last thing you want is to have the deal revoked prematurely because you forgot to send your payments on time or wind up with a large amount of costly debt again because you stopped paying attention to the growing balance. 

Strategies to offset these problems include:

• Mark Your Calendar: You should always know exactly when the promotional period ends. You can use a wall calendar as a visual reminder or the one on your mobile device, so it’s always with you. 
• Regularly Review Your Balances: Pull up your account statement online daily or weekly, and ensure you keep accumulating debt in check. 
• Enroll in Automatic Bill Pay: Take advantage of technology to ensure your payments are always posted on time. Use the credit card issuer’s bill pay system to have either the minimum payment or a fixed monthly payment deducted from a select checking account and sent to your credit card account. 
• Consider Using a Money Management App: These tools will give you a holistic sense of how much money you have in the bank, when bills are due, and track the amount you owe on all your accounts. 

Monitor Your Credit Utilization

A 0% introductory APR credit card can not only be financially beneficial, but it can also improve your credit score. When you make purchases with these cards, the cost won’t escalate with applied financing fees, making it easier to remain in the black. 

One of the most important FICO credit scoring factors is credit utilization, which is the amount of money you owe on revolving credit products compared to the amount you can borrow. It’s best to keep the balance well below the credit limit on individual cards and in aggregate. 

If you are trying to keep your score as high as possible and use your card to make an especially large transaction, formulate a plan to lower it in a few payments. 

If you use a 0% APR credit card for a balance transfer, it may improve your credit score because the cards that had been overloaded with debt are now empty. The downside is that, in many cases, the transfer could result in maxing out the new card. You should make a few large payments initially to open up your credit utilization ratio. 

Finally, suppose you are worried about how the newly opened credit card will impact your credit scores because it dilutes the length of your overall credit history. In that case, you can relax in most circumstances. 

Although credit history is a credit scoring factor, it’s relatively minor compared to payment history and credit utilization. Any adverse effect will be temporary as long as you handle the new card responsibly. Make all your payments by the due date and keep revolving debt as close to zero as possible. Your credit scores will benefit as you enjoy overall financial health. 

A credit card with an introductory 0% APR offer for purchases or balance transfers can be a financial boon for those who can pay the balance before the promotional period expires. But if you run up balances you can’t pay off in time, it could lead to a debt explosion.

Before applying, plan how to use the card and shop for the best rates and terms. Also, remember to review the regular APR the card will charge after your promotion ends.