When interest rates are low, 0% introductory rate credit card offers come out to play. Borrowing money is cheap for banks, which they pass along to consumers to entice them to use lines of credit. The goal of the credit card companies is to get consumers to charge up a large balance that is not paid in full by the end of the introductory period. The interest rate is then jacked up and the credit card companies start making money hand over fist.
Some common offers I’ve seen in the past are:
- Zero Interest On Balance Transfers: The length of the introductory rate can vary (6-12 months being the most common), but the back end of the offer is always the same. There is a balance transfer fee, commonly 3% of the amount transferred. A 0% interest rate is in effect for some period of time, but afterwards a much higher interest rate takes effect. Interest is actually calculated and accumulated during the introductory period, but adding it to the consumer’s balance is deferred until the end of the introductory period.
- Zero Interest On Purchases : Exactly like the 0% interest on balance transfers except on purchases, and the balance transfer fee does not apply.
- Low Interest Forever: I’ve only seen this offered once, and it was several years ago. I received offers for a very low interest rate (under 3%) for the life of the balance. This was likely before the financial collapse, and credit card companies were competing heavily for consumer business.
But with the Federal Reserve raising interest rates a tick, borrowing money is now just a little bit more expensive for banks. As the rate increases, those zero percent introductory offers will become less common. While a quarter of a percent isn’t much, it is likely the beginning of an upward trend for interest rates and consumers can already see the effect it has on credit card offers.
- Low Interest introductory period: While I still get a fair share of 0% introductory rate offers in the mail, I’m now starting to see offers with an introductory rate of slightly higher than 0%. For example, I recently received an offer for 0.99% interest for 21 months.
- No Balance Transfer Fee: I also just received an offer for 0% introductory rate for 16 months with no balance transfer fee. I’ve never seen this offered before.
It will be interesting to see what happens to interest rates in the coming months and years, and what effect those changes have on credit card offers.
How about you, Clever Friends, have you received any out of the ordinary credit card offers recently?
Brought to you courtesy of Brock