What is a credit card teaser rate?
A credit card teaser rate is a promotion in which a credit card issuer temporarily offers a lower than average price annual percentage rate (APR) on their cards. Thanks to these programs, credit card companies hope to attract new cardholders and encourage existing cardholders to transfer their credit card balances from competing issuers.
Key points to remember
- A credit card teaser rate is a promotional program in which the interest rate on the credit card is temporarily reduced.
- They usually last between 6 and 12 months and are more common when the economy is strong.
- Consumers should be careful not to use the teaser rate as an excuse to take on more debt than they can otherwise afford.
How credit card teaser rates work
Credit card teaser rates are commonly featured in advertising campaigns by credit card companies. Under the Credit Cards Liability, Disclosure and Disclosure Act (CARD), 2009, credit card teaser rates must last at least six months. In practice, most issuers tend to offer such promotions between six months and one year, although they sometimes extend up to two years.
When determining what credit card hook rates to offer, credit card companies consider many different factors. These include economic considerations, such as the general state of the business cycle, as well as factors concerning the solvency of the individual borrower. Generally speaking, teaser rates tend to be more common and generous when the economy is doing well, as credit card companies compete with each other for new business. Conversely, teaser rates become less common during times of economic hardship, such as the 2007-2008 financial crisis.
While credit card interest rates can be an attractive way to temporarily borrow at low cost, consumers should avoid spending more than they can repay. While credit card teaser rates can be appealing to consumers purchasing new credit cards, teaser rates can quickly put a consumer in hot water. Consumers who get a teaser rate on a new card should be careful not to let the low rate influence them to make poor spending choices. Otherwise, they could end up with an unsustainable debt burden that they cannot afford to repay or maintain once the introductory rate has expired.
Concrete example of a credit card teaser rate
Taylor purchases a new credit card and wants to pay as little interest as possible. At the time of their research, the economy is doing very well, prompting credit card companies to offer generous teaser rates in order to attract new businesses.
After comparing different options, Taylor finds a credit card offering 0% interest for the first 12 months. To take advantage of this temporarily cheap credit, Taylor ramps up her spending, using the card to purchase several consumer items that they would not normally be able to afford.
While this offer looks attractive in the short term, it could leave Taylor in a very vulnerable financial position. Unless they are able to repay the outstanding credit card debt before the end of the introductory period, they might not be able to repay that debt once the interest rate goes down. normal card will take effect.