How credit card promotional interest rates work

Some credit cards may offer a low or 0% promotional interest rate to cardholders. The rate is considered promotional because it lasts for a limited time. But during that time, qualifying transactions don’t accrue any interest.

That can make promotional offers useful for consolidating debt or making major purchases. But there’s more to it than that. Before you apply for a credit card with a promotional interest rate, it may help to know about a couple of types of promotional offers and how they work. 

What you’ll learn: 

• Some credit cards offer cardholders a promotional interest rate that lasts for a limited time and may apply to balance transfers, purchases or both. 

• Promotional interest rates have to last for at least six months, but they often last longer.  

• It’s possible to end a promotional period early and trigger a higher-than-standard penalty APR by doing things such as making a late payment. 

• Deferred interest offers are another type of promotion, but they’re different from promotional rates.

Promotional interest rates are short-term offers that allow cardholders the chance to avoid interest charges on things like new purchases and balance transfers. Cash advances and other transactions may not be eligible for promotional rates.

Offers for new cardholders are referred to as introductory rates. But issuers can also offer promotional rates to existing cardholders.

By law, promotional interest rates have to last for at least six months. But they often last as long as 12 or 21 months. When the promotional period ends, the card’s standard APRs will apply.

It’s also possible to prematurely end the promotional interest rate and trigger a higher-than-standard penalty APR by doing things like making a late payment.

Promotional interest rates and deferred interest both offer the promise to help you save on interest. But the Consumer Financial Protection Bureau (CFPB) notes that their differences “can have big effects on your wallet” depending on how you use them.

Here’s how the CFPB says they compare:

As with any financial decision, it’s important to consider the potential pros and cons of applying for a credit card with a promotional interest rate offer.

A major perk of a credit card promotional interest rate offer is that qualifying transactions accrue little or no interest during the promotional period. 

Credit cards with promotional interest rates may provide an opportunity to consolidate high-interest debt and pay it down faster or allow more time to pay for a major purchase without accruing interest.  

Plus, you may also get to enjoy any rewards, perks and benefits that come with the card.

Promotional interest rates don’t last forever. They’re limited-time offers, and the card’s standard rate will apply after the promotional period ends. Plus, if you do things like make a late payment you may end the promotional period early and trigger a higher-than-standard penalty APR. 

If you’re planning on using a promotional interest rate offer to transfer balances from another credit card issuer, make sure to consider how transfer fees could affect your budget and payment planning. 

If you’re applying for a new card, it typically triggers a hard inquiry, which can cause a temporary dip in your credit scores.

Whether you’re researching an offer for a promotional rate or deferred interest, the CFPB has some considerations to keep in mind:

• Debt: Like any other credit card, you have to repay the money you spend with a promotional interest credit card, even if it’s interest-free.

• Limited timing: Promotional interest rates don’t last forever. Take note of when the offer begins and ends. 

• Standard APRs: Once the promotional period ends, the card’s standard APRs will apply. Depending on the card, standard rates may be much higher than the promotional rate.

• Terms and conditions: Reviewing the details can help you understand things like how the promotional interest rate works, what transactions it applies to and what happens when the promotional period ends. 

• Monthly payments: If you want to pay off the card’s entire balance before the promotional period ends, determine how much you need to pay each month to make that happen. Typically, making only the minimum payment won’t be enough to cover the entire balance.

Promotional interest rate offers last only for a limited time. By law, they have to last at least six months, but they may go on for longer. And once the promotional period ends, the card’s higher standard APRs will apply. 

If you’re interested in learning more, you can explore Capital One’s low intro rate credit cards and check for pre-approved card offers before you apply. Pre-approval is quick and won’t hurt your credit scores.