Top 3 Pitfalls Of Misunderstanding Promotional Interest Rates

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Interest rates are commonly misunderstood. It is difficult sometimes to take in all the detail that comes with them, and the many different kinds of interest rates. Still, understanding how interest rates work is an essential part of having credit cards. The penalties for misunderstanding interest rates, especially introductory or promotional rates, can be a mistake that ends up costing you way more than you thought it would. It is important to know everything about the interest rate on a credit card before you even get it. That way, there are no surprises.

Top 3 Pitfalls of Misunderstanding Promotional Interest Rates

1. Buying on credit cards and paying later… in more ways than one

This seems to happen a lot when you buy things on credit from specific stores. They promise you a tempting 0% interest rate for a certain period of time, during which you do not even have to make any payments if don’t want to. But the thing about interest rates is that whether you are paying interest or not, it still builds up, slowly increasing during that time and adding up to be more than you bargained for. For instance, you could buy a couch from a furniture store because it promised a low interest rate for the first six months, in which you don’t pay a dime, and then find out six months later that the interest rate has been climbing and is suddenly ten times more than you started out paying.

2. Balance transfer offers

Along with low interest offers that you often find in stores, balance-transfer offers present great promotional interest rates. But if you find out more about it, you may come to see that these rates may only be in effect when transferring a balance or when a new purchase is made with your card. Sometimes it only applies to one of those cases, leaving you stranded with a high rate when you use one or the other. For example, if you were to transfer your balance to one credit card that seemed to have a low interest rate, but proved only to apply that low rate to new purchases, you come out paying way more than you thought you would starting out.

3. Having low promotional rates sky rocketed into high regular interest rates

Find out exactly when your seemingly perfect interest rate expires. You could get a great interest rate on a credit card at first, but because you did not read the fine print, you come to find out that great rates only last for so long. Many credit card companies will start out with low interest rates, but can increase them after a certain period of time, making you pay ten times more than you started out paying.

Understanding how interest works and knowing just exactly what you’re getting into when you apply for a credit card that has low rates is very important. Paying on credit cards is much easier when you know how much you will be paying now and what you will pay once the promotional rates expire.