Understanding Introductory Rate Credit Cards

An introductory rate is an interest rate that is usually below-market and is offered for the initial billing cycle(s) of the credit card. Introductory rates are also called teaser rates and honeymoon rates.

What is a Credit Card Honeymoon Period?

A credit card honeymoon period gives you a reduced interest rate for the select “honeymoon” or introductory period. During this period, which is normally between six (6) months to a year, annual and regular account keeping fees may also be suspended.

What Are Introductory Rate Credit Cards or Honeymoon Credit Cards?

Introductory Rate Credit Cards or Honeymoon Credit Cards are actually marketing strategies adopted by lenders to attract customers. After this period expires, the rate reverts to a higher interest rate. The revert rate is usually the credit card’s purchase rate, although some lenders will default to the cash advance rate after an introductory low rate, which is usually higher than the purchase rate.

How does a low introductory rate help?

If you have a large credit card debt, a honeymoon period can alleviate the burden and help you pay everything off during the honeymoon period.

For example, if at present you are paying huge amount of money because of the high rates on your outstanding balance, what you can actually do is to transfer the balance to a lender offering a low introductory rate. Doing so would dramatically reduce the amount of interest you are paying on your debt. Moreover, if you are wise enough to put your interest savings towards your balance each month, then before the low rate expires, you have reduced significantly your debt.

The introductory rate can be speedily expired if you're more than 60 days late on your credit card payment. When this happens, your credit card interest rate may increase to the default rate, which is the highest interest rate charged on the credit card. This will not do you any good.

To enjoy the benefits of credit cards, always ensure to pay it off in full every month so that you avoid interest charges. If, however, you have not done this in the past, and now you’re finding yourself overburdened with interest charges and ballooning credit, a honeymoon period might help you get back on track.

Other Things to Consider

Introductory Rate Credit Cards or Honeymoon Period Credit Cards are very attractive, but remember that, like normal honeymoons after the marriage ceremony, it ends, or the good times end.

Prepare for the honeymoon period to end. But don’t forget to take advantage of all the nice things about the honeymoon period: the low interest rates plus the suspended annual and regular account keeping fees.

Here are things worth looking into prior to committing yourself to this type of credit card. Again, be aware of the traps placed to ensnare naïve borrowers who never look into the details. Find out as much as you can about the following:

o        What will be the interest rate after the honeymoon period ends?

o        What does the reduced rate apply to? Some providers only apply the reduced rate to the balance you are transferring over. For every cent you spend over the original balance amount, a higher interest rate may apply;

o        Are there penalties for late payment? If you are late in paying a repayment amount, even by a day, some providers will revert your account to their standard interest rate and will disallow you from reverting back once you’ve paid.

So, before you decide to take advantage of a honeymoon period, be sure to read the fine print. Ask for clarifications if there are things you don’t really understand. Find someone you trust and seek advice. Think hard and think well before making any decision. Make an informed decision.