Why Promotional Rates Confuse ConsumersAugust 18, 2010 - 9:00 am
Credit card offers come in all shapes and sizes and many will immediately promise you the best deals on the plant. Credit card companies are competitive and when you are ready to apply for a new credit card, you may get more than you bargained for in return.
Credit card companies take new business seriously so many times they are willing to pull out all stops to make their offer the most appealing to you. Typically the ideal way to gain the right interest from consumers is by offering the best pricing on the market.
Interest rates are one of the main consideration factors a consumer uses when considering a applying new credit card. The interest rate will be determined by the credit history and score of a consumer but will often be advertised as low as 0% on new card offers for those consumers who are deemed creditworthy. With 0% interest, consumers are not extending any more cash for their purchases but still have the option to pay for a purchase over time. It seems like a good deal to find low or zero percentage interest rates but there is generally a catch.
Knowing the Limits
The low or no interest rates on a new credit card are often limited in their time. The credit card companies will use the low or no interest rates in their advertising but it is sometimes left up to the consumer to figure out the good times won’t last. After a period of generally 6-12 months, the low interest rate will expire and a new, much higher rate will kick in.
Consumers not realizing the change in terms can end up deep in debt with balances they can no longer afford. The additional interest charges, plus late payments or fees can rack up a sizable debt. If you have not paid off your full balance before the promotional rate ends, you will likely end up paying much more for your original purchases and for a period much longer than you expected.
Once the promotional period ends for a low or no interest rate, there is often little left of the card that actually benefits the card holder. Without understand all of the terms and conditions of the credit card, the consumer is stuck with a card without other incentives or rewards. Since closing the account may end up damaging a credit score, a consumer will either have to deal with the card they have or apply for a new card, another risky move in terms of credit history impact.
It is hardly news that credit card companies want to entice business from new customers but wise consumers will look beyond low rates and see the whole picture before selecting a card. Terms and conditions are outlined on each card application and nothing should be signed without first reading the rules and regulations on the card. Check out the incentives the card offer and determine which card features fit into your lifestyle. Compare not only interest rates but fees, penalties, and grace periods on several cards before making a decision. The more informed you are about your new credit card, the more prepared you will be to use credit cards to your own personal financial advantage.