Hi. My name is John Ulzheimer, and I'm a credit expert who
contributes to CreditCardInsider.com. If you have any questions for us
then please submit them in the comments section below.
Today's question comes from YouTube user Adriana "Adri" Vargas. Her
question is this... What is a intro APR?
She would also like me to talk about the difference between an intro APR
and a regular APR. And then purchases made under both the regular
or the intro APR. So first off, the APR is the annual percentage rate.
So in other words it's the interest rate you're gonna pay
if you do choose to carry a balance on your card
from 1 month to the next. If you pay your balance in full every single month
and you never carry a balance forward, you don't need to worry about the APR, because you're not paying
interest,
so there's nothing to apply interest rate to. Most
credit card issuers today issue rewards
style credit cards. And one of those types of rewards cards
is the 0% interest
APR card. And most
credit card issuers are marketing those to consumers who have debt
on other cards. And their marketing them as balance transfer options.
So if you have a balance on one of your cards, you may get offers from another card issuer saying,
"Hey! Transfer that balance from that other card to our card, we'll give you
an intro APR of 0% for 12 months,
18 months, whatever, and you'll also get 0% APR on
new purchases. So essentially it is a
bonus annual percentage rate, of some very low, in many cases,
0% structure, which is an incentive for you to do business with
them.
Now, the reason this is called an intro or an introductory APR,
is because it's not going to last forever. Obviously a credit card issuer is in
business to make money.
And one of the ways they make money is by charging you interest on the debt
that you carry from month to month. So they have to eventually
change your APR from the intro APR of 0% to something
greater than 0%. And that APR is what's
commonly referred to, and in Adriana's question, is what's referred to as kind of a regular
or persistent interest rate. That interest rate is obviously
going to be set based on the credit quality of the applicant. But generally speaking, it's
going to fall in the
15 to 16% range, although
that can vary greatly in either direction. But generally speaking, 15% is a good
target or expectation. If you make purchases under the intro APR,
meaning that you make a purchase at 0% APR,
the APR on that particular purchase cannot go up,
unless you do something like start missing payments.
If you start missing payments, then the credit card issuer can
asign a higher interest rate retroactive, meaning that they can
retroactively change the interest rate on purchases that you've already made. But generally speaking
if you continue to make your payments on time, then all the purchases you made on
under the intro APR will be priced out at the intro APR.
And remember, this is only relevant to the point where you actually
use the card long enough that the APR actually expires.
The regular APR, let's just say hypothetically that that's 15%,
any purchases made when that particular APR adjusts to the new
regular interest rate, any purchases made under that, at that period of time will be priced out
under those particular terms. So
it's something to keep in mind, because you may start getting credit card
statements after you've had
the account for awhile, that actually have variable purchases under variable interest rates.
One is the intro. One under the regular APR.
Another thing to keep in mind is,
there may be language in your cardholder agreement that
allows the credit card issuer to charge you
interest retroactive to the day that you opened the card
if you have not paid off the balance transfer in full.
This is going to be very expensive if this is applicable to your card
and you don't take care of it. So let's say you get an intro APR at
0% for 12 months, and you transfer $10,000 to that card.
And then for 12 months, you have no interest on that $10,000.
If you don't pay that $10,000 off by the time 12 months expires, and
your grace period of 0% APR expires, they're gonna hit you with interest
all the way back to the first day that you opened your account,
on the entire amount. So be very careful when you're using these types of cards.
The expectation is that right now there's no interest.
But going forward, there absolutely can be. So you're going to want to work
very diligently to payoff that card as quickly as possible,
before the intro APR expires. If you have any other questions pertaining to credit
or financial topics, then please submit them to CreditCardInsider.com
or in the comments section below. Have a nice day!