Introductory rate: What it is and how it works

There it is. A big zero in front of the percentage on an introductory credit card offer. A super-low interest rate can be tempting. But like any important financial decision, it’s a good idea to get the facts about an introductory annual percentage rate (APR) deal so you know exactly what it could mean for you.

Here are some things to know about how introductory APRs work and how you might be able to use one to help meet your financial goals. 

Key takeaways

• A credit card introductory rate, or intro APR, is a special interest rate that’s typically set for new purchases or balance transfers. 
• An intro APR lasts for a limited period of time, often between 12 and 21 months, depending on the credit card issuer.
• Once an intro rate expires, a standard APR applies to new purchases and any leftover balance on the credit card. 
• There might be certain fees and restrictions associated with intro rate credit cards, so it’s helpful to read the fine print to understand all the card’s terms. 
• New cardholders may use an intro APR as a way to pay off debt faster or to finance a large purchase.

APR refers to the annual interest rate that credit card issuers charge if you carry a balance. An introductory APR is a lower-than-usual APR that you get for a set period of time when you open an account. An intro APR may apply to a card’s purchases, balance transfers or both.

An intro APR doesn’t last forever. It’s a limited-time offer. When the introductory period is over, your standard APR will apply. If you’re carrying a balance on the card when the intro APR period expires, you’ll start to see the card’s standard rate applied to the balance.

By federal law, intro APR periods must last at least six months. But they can be extended. If you take advantage of an intro APR, be sure you know when it will end and when the standard rate will begin.

If a card offers a 0% intro APR, this means you won’t have to pay interest during the introductory period. And that could apply to qualifying purchases, balance transfers or both. 

Keep in mind that intro APRs aren’t always 0%. You might think of 0% when you hear “intro rate,” but the APRs can vary.

When comparing credit card offers, it’s helpful to understand the difference between 0% intro APR and deferred interest. A 0% interest offer means interest isn’t charged during the promotional, interest-free period. But once the promotional period ends, the standard rate will be applied to new purchases or will begin to accrue on any remaining balance.

On the other hand, deferred interest delays charging the standard interest rate until the end of the introductory period. This means if there’s any remaining balance, you’ll be responsible for paying back all interest costs that were accrued from when the account opened. Deferred interest is commonly found with store credit cards.

Cards with intro APR offers might have restrictions and fees you should know about before applying. Getting all the facts about the offer can help you find a card that’s right for you. 

Here are some things to consider when it comes to intro APR offers:

Intro APR credit cards can be based on a borrower’s creditworthiness. So the promotional rates are often geared toward those with good credit scores or excellent credit scores. 

It’s a good idea to understand what the intro APR applies to. One card’s intro APR might only apply to balance transfers, not purchases. Another might be the opposite. Or the intro APR might apply to both. Most of the time, these introductory rates don’t apply to cash advances.

Just because there’s an intro APR offer doesn’t mean there are no fees. For example, some cards might charge a balance transfer fee. So if your goal is to pay down your debt by transferring another credit card’s balance to a lower-interest card, make sure you take the fees into account.

There might also be fees and penalties for things like late payments.

If you make a late payment or miss a payment altogether, you might lose your intro APR. In some cases, your card might charge a penalty APR after a late or missed payment. A penalty APR is likely much higher than the standard APR that kicks in after the introductory period.

Many new cards—whether they offer an intro APR or not—come with a grace period. A grace period is a length of time when you may not be charged interest on your credit card purchases. If your card has a grace period, different factors might impact whether the grace period applies to a purchase—like whether you’ve paid your previous balance in full by the due date each and every month.

You can check your credit card’s terms and conditions to see whether your credit card has a grace period. And keep in mind that most credit cards don’t provide a grace period on cash advances or balance transfers.

Make sure you know how long the introductory APR lasts. If your goal is to pay off your entire balance before it ends, it could be a good idea to make a budget.

Now you know the basics about how an introductory APR works. But why does it matter? And how can it help you accomplish your goals? Here are two ways you might use a low introductory APR:

You might consider a card with a low intro APR if you’re transferring a balance. Balance transfers can help you consolidate credit card debt and simplify your monthly payments.

Balance transfers are pretty simple: You move your debt from one credit card with a higher interest rate to another with a lower interest rate. When your debt is accruing less interest, your payments may result in the debt being paid off faster.

Keep in mind that you generally can’t transfer balances between cards from the same issuer. And balance transfers might have fees attached. So make sure you know if you’ll be charged—and how much—before you make your decision.

You might decide to open a low-interest credit card to pay for large purchases like furniture, electronics or appliances.

And if you stick to a budget, you could even pay off the entire balance before the introductory period ends. That way, you don’t have to worry about paying the standard interest rate on your purchases.

Hopefully, the next time you see an offer for a low introductory APR, you’ll know more about how it works. And before you apply, don’t forget to get all the details, including how long the rate lasts and what it covers. 

You can explore Capital One’s low APR introductory rate credit cards to learn more about what they have to offer.