What Happens After the Introductory Rate?
With hundreds of Americans applying for credit cards every day, it seems as if the rising incidence of credit card debt is not deterring cardholders from assuming new credit responsibilities.
Likewise, it certainly is not deterring the card companies from approving applications and soliciting new cardholders with increasingly competitive offers. To grab the attention of prospective cardholders credit card companies are offering more benefits, and most financial institutions now offer 0% APR introductory rates. Having a period of time in which no interest is charged is certainly appealing, however many fail to anticipate what will take place once the introductory rate has expired.
The True Interest Rate
In order to be financially prepared for the expiration of the introductory interest rate, it is very important to understand the specific terms of the credit card application before applying. Start by finding the date on which the introductory rate will expire. It is important to note that introductory periods often differ depending upon the individual’s credit score and various other factors. After the length of the introductory period is understood, it is absolutely imperative to note the exact interest rate that will be applied to purchases made after the introductory period. Having a 0% APR for 6 months may be an attractive proposition, however a 17% APR thereafter could cause debt to sneak up unexpectedly, especially if the rate rises without notice.
Minimum Payments, Due Dates and Unexpected Changes
Since there are no interest rates during the introductory period, the card company must compensate by requiring a higher minimum payment at the end of each billing cycle. Thus, it is important to enquire about the minimum payment percentage that is applied to the card’s balance each month. It is also important to enquire about and be conscious of the payment due date. If the due date and minimum payment terms are violated, the card company may abruptly end the 0% APR introductory rate without notice. Thus, it is very important to understand and adhere to these terms to get the most out of the 0% APR introductory period.
What to Do After the Introductory Rate Expires
The actions taken after the expiration date of the introductory rate will depend entirely upon the terms of the card and the needs of the cardholder. If the interest rate rises sharply, then it may be best to discontinue making purchases on that card and apply for another one with more reasonable terms. Be sure to pay off the balance in full before switching to another card. Some people use the zero interest introductory rate to transfer balances from other cards in order to avoid high interest rates and consolidate debt simultaneously. While this may be beneficial for some, the same aforementioned recommendations apply to the post-introductory period. Regardless, it is always best to plan ahead rather than making decisions on the spur of the moment.