What Is an Introductory Rate?

What Is an Introductory Rate?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

An introductory rate, often seen in the world of credit cards and loans, refers to the temporary low interest rate that is offered to new customers for a specified period. The promise of an introductory rate can be a powerful incentive, attracting customers to sign up for credit cards or loans as it results in lower initial costs. The duration of this type of enticing rate varies but it’s typically from a few months to up to a year or more. After the introductory period ends, the interest rate increases to the standard, higher rate.

Related Questions

1. How long do introductory rates usually last?

Generally, introductory rates are designed to last from 6 to 18 months; however, the exact length will depend on the specific terms and conditions of the credit card or loan agreement.

2. What happens after the introductory rate expires?

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When the introductory rate period expires, the interest rate rises to a pre-arranged standard, higher rate. This standard rate will apply to any unpaid balances and all future transactions.

3. Are there any risks associated with introductory rates?

Yes, there can be risks if you don’t manage your finances wisely. The key risk is incurring high interest charges if you’re unable to pay off your balance before the end of the introductory period. Also, some agreements may have a clause that revokes the introductory rate if you miss a payment, resulting in immediate application of the high standard rate.

4. Can the credit card company change the introductory rate?

Credit card companies generally cannot change the introductory rate during the established introductory period, as specified in the terms and conditions of your agreement. However, they can alter the standard rate that will apply after the introductory period.

5. Do all credit cards offer an introductory rate?

No, not all credit cards offer an introductory rate. Keep in mind, introductory rates are promotional tools used by credit card companies to attract new customers. Each company has its own strategies for gaining and retaining customers, and not all choose to use introductory rates.