Promotional Interest Rates on Credit Products

Definition and Purpose

Many financial institutions offer promotional interest rates as an incentive to attract new customers. These rates, often significantly lower than standard rates, are typically applied for a limited introductory period on certain credit products.

Application to Credit Products

These introductory rates are commonly found on credit cards, personal loans, and other forms of consumer credit. The specific terms and conditions vary considerably depending on the lender and the type of credit product.

Duration of the Introductory Period

The promotional period is usually defined in months, ranging from a few months to a year or more. After the introductory period ends, the interest rate will revert to a higher, standard rate (often referred to as the "regular APR" or "ongoing APR"). This standard rate is typically fixed or variable, depending on the lender's policy and market conditions.

Calculating Interest During the Introductory Period and Thereafter

During the introductory period, interest charges are calculated based on the lower promotional rate. The calculation method (daily, monthly, etc.) is specified in the credit agreement. Following the introductory period, interest is calculated using the standard rate, resulting in potentially higher monthly payments.

Important Considerations

• APR: The Annual Percentage Rate (APR) reflects the total annual cost of borrowing, including interest and other fees. The promotional APR is only applicable for the stated introductory period.
• Fees and Charges: Be aware of any associated fees, such as annual fees, balance transfer fees, or late payment penalties, as these can affect the overall cost.
• Minimum Payments: Making only minimum payments will significantly extend the repayment period and increase the total interest paid, even during the introductory period.
• Credit Agreement: Carefully read the terms and conditions outlined in the credit agreement before accepting the offer. Pay close attention to the introductory period's length and the subsequent standard APR.

Impact on Total Repayment Cost

While the lower introductory rate offers immediate savings, failing to pay off a significant portion of the balance before the promotional period ends will lead to a considerable increase in the overall cost of borrowing due to the switch to the higher standard APR.