bank rates

The Hidden Danger Of A 0% Intro Offer

Most issuers will charge all of the back interest you saved during the promotional period if you miss a payment.Since the dawn of the first credit card, issuers have been pretty sneaky in the ways they generate revenue from us.

Yes, a lot of these tactics were addressed in the Credit CARD Act of 2009.

Still, one of the pitfalls many consumers fail to recognize is the danger of 0% introductory offers.

On the surface, you might not think that having a 0% intro APR for an extended period of time is dangerous, but do you know what happens if you miss a payment or go over your credit limit during this time?

The answer isn’t good: Most issuers will charge all of the back interest you saved during the promotional period.

For example, let’s say you sign up and are approved for a 0% intro APR on purchases for 12 months before reverting to a purchase APR of 18%.

You buy $5,000 worth of goods the first month and make only the minimum $100 payments each month. Then, during the 10th month, you forget to make a payment.

Guess what happens?

First, you’ll get hit with a $35 late payment charge, which will be the least of your worries.

Then, because you defaulted on the terms of your 0% intro offer, your credit card issuer will charge you for 10 months of back interest, about $700.

Finally, you’ll lose the remaining two months of your 0% introductory offer, and there’s a chance your credit card issuer will set your future APR to the default rate, which is generally around 30%.

Everything I’ve outlined above can be found in your credit card agreement.

That’s the document that comes with your credit card in the mail. Too often, consumers are surprised to learn that they can default on their promo rates and then fight to save costly interest payments.

The next time you sign up for a new credit card with a great introductory rate, make sure you read the fine print carefully.

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