Introductory rate: What it is and how it works

When it comes to credit cards, an introductory rate is a lower-than-normal interest rate offered to new cardholders. It’s a kind of promotional annual percentage rate (APR), and you might see the term shortened to “intro rate.”

Learn more about credit card intro rates and how you could use them to help meet your financial goals.

What you’ll learn:

• A credit card’s intro rate typically applies to new purchases or balance transfers. 

• Intro rates are temporary. Once they expire, standard rates might apply to new purchases and any remaining balances.

• Intro rates can be as low as 0%. But they might be higher depending on the applicant, the issuer and the card. 

• Lower interest rates can be part of strategies to pay off debt faster or to finance a large purchase.

APR refers to the annual rate that credit card issuers charge cardholders to borrow money, though there are ways to avoid being charged interest. 

An introductory APR is a type of promotional APR that gives new cardholders a lower-than-usual APR for a specified period. When the introductory period is over, the standard APR goes into effect and the card’s standard rate could be applied to the outstanding balance.

By federal law, intro APR periods must last at least six months. But they might last longer. For example, Bankrate says 0% intro rates usually last 12-21 months. According to the Consumer Financial Protection Bureau (CFPB), card issuers can cancel introductory rates if cardholders are more than 60 days behind on minimum payments.

An intro APR may apply to new purchases, balance transfers or both. 

• Introductory APR on purchases: Credit card purchases won’t be charged interest during the promotional period. When that period ends, the standard APR will kick in and apply to new purchases and any remaining balances.

• Introductory APR on balance transfers: A low intro rate could help you avoid interest if you transfer a balance from another issuer. Once the promotional period is over, the standard APR will typically apply to the remaining balance.

Most of the time, introductory rates don’t apply to cash advances.

A 0% intro APR means the interest rate on qualifying balances is 0% during the introductory period.

Here are some things to think about when it comes to intro APR offers.

Like getting approved for a card in the first place, intro APR card offers can be based on creditworthiness. In general, the higher your credit scores, the easier time you might have securing a low intro rate.

An intro APR offer doesn’t mean there are no fees. There could be annual fees for the card itself or fees depending on how you use the card. Here are two examples:

• Balance transfer fees: The CFPB says these are “charged to transfer an outstanding balance to a different credit card.” And Bankrate says they’re typically 3%-5% of the transfer amount.

• Late payment penalties: Missing payments could result in late fees and the promotional period ending early. In some cases, issuers might apply a penalty APR, which is typically higher than the standard APR that kicks in after the introductory period.

It helps to know how long the introductory APR lasts. If you’re planning to pay off your entire balance before it ends, creating a budget could help you reach that goal. If you transfer a balance, you might also consider any transfer fees. 

Thinking beyond the promotional period could be helpful too. Using grace periods and paying off your balance on time every month are ways to avoid paying interest on new purchases. But keep in mind that grace periods don’t typically apply to cash advances.

Now you know the basics about introductory rates, it might be clear how they could help you accomplish your financial goals, including:

Using a low intro APR and transferring a balance could help you save money, consolidate debt and simplify your monthly payments. When your debt accrues less interest over time, keeping up with your payments may help you pay off the debt faster. 

Even if there are balance transfer fees, you could end up saving money in the long run. Calculating the balance transfer fee against your potential savings could help you decide if it’s worth it.

Using a low-interest credit card could help you pay off a costly purchase (furniture, electronics, appliances and more) over time. Paying off the balance before the introductory period ends could mean you do it without being charged any interest.

Want to know more about introductory rates for credit cards? These frequently asked questions might help.

A credit card with a 0% intro APR could help you save money on interest and pay down debt. But it’s helpful to be prepared when your promotional period ends.

If you’re ready to take the next steps, you can explore Capital One credit cards and find one that fits your needs.

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