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Credit card teaser rates hide dangers
Rates are great for transfers, but they could go up
Credit card companies often offer low, introductory, “teaser” interest rates in order to get you to sign up. Watch out, though, because there are hidden dangers in the fine print of those accounts that could cost you dearly later.
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Credit card interest rates may go up for a number of different reasons
The credit card industry is a competitive one; with thousands of banks offering credit cards, each of them has to find a particular way of enticing customers that otherwise might sign up with a different card company. One relatively recent tactic used is the low, introductory “teaser” interest rate. These rates, prominently displayed on the envelope when they come in the mail, are often less than 5% and are usually good for balance transfers. The idea is to persuade you to take out a new card, transfer your balance from your old card, and then cancel the old one. And it’s a great idea if you have a large outstanding balance on a card with a higher interest rate. You can transfer it to the new card and pay it down at the new, low interest rate.
Beware, however, that all may not be as it seems. There is, as always, fine print to these credit card offers, and failing to heed the terms of the agreement could cost you a lot of money in the long run. Make sure that you agree to the terms in the fine print; if you do not, then throw the application away.
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Here are some things that you should watch out for in the fine print of the agreements for these cards with low interest rates for balance transfers:
- Length of time - How long is the teaser rate good for? Six months? A year? Until you pay off the balance? Obviously, the latter is the best deal, but keep in mind that these rates often have time limitations, and once that time period is up, the interest rate will increase whether you have paid off your balance or not.
- What is the default rate? - The default rate is the interest rate that the card will charge you if you are late on a payment. Those 2% teaser rates are nice, but not if you pay a bill late and the rate increases to 29%. Watch out for the default rate.
- Universal default clause - This is a clause that informs you that your interest rate may go up even if you pay your bills on time. The bank may check your credit report once or twice a year. If you make a late payment to any creditor you may find that your bank now views you as a “higher risk” customer. They will use this to justify increasing your interest rate. Pay the light bill a week late, and your teaser rate may be gone.
- Any reason at all - The terms of the agreement usually permit the bank to raise your rate for any reason at all with two week’s notice, despite what you thought you agreed to.
- And of course, don’t use the card for anything else until you pay off your balance transfer. New charges don’t qualify for the teaser rate and they will be paid last.
Teaser rates are great if you can pay your bill promptly and pay your balance down quickly. Otherwise, you could find yourself paying a lot more in interest. Read the bill carefully.
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