How does low APR work for credit cards?

How does low intro APR work?

You might have received offers for a low intro APR credit card in the mail and wondered how you could have a credit card with low interest for an introductory period of time.

A low intro APR credit card offer allows for an introductory period of some months that lets you either make new purchases and/or transfer a balance from another card without paying any interest on those balances until the low intro rate expires.
Some cards will offer a low intro APR for purchases, or for balance transfers, or for both, and these intro rates might last for different amounts of time.

The low intro APR period may not apply for all transactions

Not every credit card swipe amounts to the same kind of transaction, and you can deal with varying interest rates on the same credit card, despite a low APR intro rate on purchases or balance transfers. Here's how the low intro APR offer works for different kinds of credit card transactions:

Purchase APR:

Purchase APR is the interest rate for new purchases made on the card. This might be covered under your low intro APR offer depending on the details of the offer.

Balance transfer APR:

Balance transfer APR is the interest rate for debts moved from one credit card to your new card. Balance transfers have to be approved by the card issuer and often come with a balance transfer fee, but you can find cards with long low intro APR offers that can help you strategically pay down credit card debt with a balance transfer.

Cash advance APR:

Cash advances are unlikely to be covered under your low intro APR offer. With a cash advance, you will begin accruing interest right away, and you might find a higher interest rate than even your standard purchase rate.

Penalty APR:

Unfortunately, a low intro APR period doesn't protect you against a penalty APR. If you fail to meet certain conditions, such as missing payments or exceeding your credit limit, your low interest intro period can be stopped and you might encounter a high interest rate in its place.

Keep an eye on the length of the low interest period

Making the most out of your low intro APR period is essential with a great offer.

If you're planning to do a balance transfer, think strategically about how you're going to use this time to focus on paying down your debt.

On the other hand, if you want to use the card for new purchases with your low introductory interest rate, make sure your balance is fully paid off before the standard interest accrual begins, or your existing balance will begin to earn interest.

A low APR credit card can impact your credit score

Because of the way your credit score works, it can still be impacted by purchases you make or balance transfers on a low intro APR credit card.

One of the key factors is the credit utilization ratio. This is the percentage of all of your lines of credit that is currently in use. If you make new purchases, even if they don't earn much or any interest, your credit utilization ratio will increase — which is bad news for your credit score.

However, if you pay down your debt after a balance transfer, that can be great for your credit utilization ratio. What's more, opening a new card will increase your credit utilization ratio as well by increasing your total available credit.

Know what it takes to qualify for a low APR offer

To qualify for a great low intro APR offer, it's best to have excellent credit and a good payment history.

Furthermore, if you want to do a balance transfer, your creditworthiness may also factor into the credit limit available on your new card, among other things.

Your offer can be canceled:

With a low introductory APR offer, it's even more important to make sure your credit card payments are timely. If you fall behind on payments, it's possible for your offer to be canceled, subjecting you to a penalty APR

Deferred interest credit cards vs. low intro APR credit cards

One thing to watch out for when looking for a low intro APR credit card is a deferred interest card.

Both deferred interest cards and low intro APR cards will let you make purchases with no interest if you pay them off before the intro period expires. What separates them is what happens when you don't.

A low intro APR credit card will only start to charge interest at its standard rate once your intro period has ended. A deferred interest credit card, on the other hand, will charge back interest for the entire time since the date of the purchase. This makes it vital to read the fine print and stay aware of your timeline.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.