Credit Card Teaser Rate

Understanding Credit Card Teaser Rates: Pros, Cons & More

Key Takeaways

A credit card teaser rate offers a temporarily low interest rate to attract customers.
Typically lasting 6 to 12 months, teaser rates can lead to higher interest afterward.
Although enticing, teaser rates can prompt more spending and potential debt issues.
Teaser rates are more common in strong economies, when credit card companies compete for customers.
Responsible use of teaser rates involves planning to repay debt before the rate increases.
A credit card teaser rate is a promotional tool that temporarily lowers the annual percentage rate (APR) on a credit card. This can make borrowing cheaper for consumers during the promotional period. Credit card companies use these offers to attract new customers and encourage balance transfers.
Consumers should use these rates wisely to avoid future debt burdens when the rates return to normal.

How Credit Card Teaser Rates Work

Credit card teaser rates are commonly featured in credit card companies' advertising campaigns. Under the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, they are required to last for at least six months.1

In practice, most issuers offer such promotions for between six months and one year, although they occasionally extend for as long as two years.

Credit card companies weigh many different factors when determining what credit card teaser rates to offer. These include economic considerations, such as the overall state of the business cycle, as well as factors concerning the creditworthiness of the individual borrower.

Generally speaking, teaser rates tend to be more common and more generous when the economy is doing well, as credit card companies compete with one another to attract new business. Conversely, teaser rates become less common during periods of economic hardship, such as during the 2007-2008 Financial Crisis.

Although credit card teaser rates can be an attractive way to temporarily borrow at low costs, consumers must avoid spending more than they can repay. While credit card teaser rates can be attractive to consumers shopping for new credit cards, teaser rates can quickly land a consumer in hot water.

Warning

Consumers who receive a teaser rate on a new card must be careful not to let the low rate influence them to make poor spending choices. Otherwise, they might find themselves with an unsustainable debt burden that they cannot afford to repay or service once the introductory teaser rate has expired.

Weighing the Pros and Cons of Credit Card Teaser Rates

Little or no interest

Can help reduce debt

Can entice more spending

May result in higher rate in long-term

Pros Explained

Little or no interest: During the promotional period, you will pay little to no interest on a credit card with a teaser rate.

Can help reduce debt: If used correctly as a balance transfer tool (with minimal additional spending), a credit card with a teaser rate can help you pay your debt faster.

Cons Explained

Can entice more spending: If you have credit and pay very little interest, you may feel you can make more purchases, leading to more debt.

May result in a higher rate in the long term: Once the teaser rate ends, you may have a credit card interest rate that is higher than the market rate. Be sure to compare credit card interest rates and factor in the rate you will have after the promotion.

Real-World Example: Navigating a Credit Card Teaser Rate

Say you are shopping for a new credit card and want to pay as little interest as possible, as credit card companies offer generous teaser rates to attract new business.

After comparing various options, you find a credit card offering 0% interest for the first 12 months. To take advantage of this temporarily cheap credit, you may increase your spending, using the card to purchase several consumer items you normally could not afford.

Although this offer seems attractive in the short term, it could leave you vulnerable financially. Unless you can repay the outstanding credit card debt before the end of the introductory period, you may be unable to service that debt once the card's normal interest rate comes into effect.

How Long Do Teaser Rates Last?

Teaser rates vary depending on the lender. Generally, a teaser rate on a credit card is about 3 to 6 months, sometimes up to a year or more.

Why Do Companies Use Teaser Rates?

Companies like credit card companies use teaser rates to gain new customers. They expect customers to pay interest.

Does a Rate Cap Apply to Teaser Rates?

Any legal interest rate caps would apply to a credit card's teaser rate and also apply once the rate expires.

Bottom Line

When used responsibly, a credit card with a teaser rate can be a financial tool that offers credit with little or no interest. However, you must plan how to repay this debt to ensure you can repay it when the teaser rate ends. These rates are only temporary. It's also important to guard against overspending during the teaser period.

U.S. Congress. "H.R. 627 - Credit CARD Act of 2009," Page 5. Accessed July 12, 2021.

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