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Zero percent credit card offers: here to stay or a passing fad?

By Ben Woolsey

Low interest and 0 percent introductory rates for credit cards have not been available forever. About 15 years, credit card choices were limited. Most banks offered a one-size-fits-all rate in the high teens and demanded an annual fee for the privilege. Today it is almost uncommon to find a credit card that doesn't offer some type of incentive rate for its first six or 12 months.

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The most popular credit card deals offer a 0 percent APR on credit card purchases and balance transfers for at least one year. Consumers have come to take these "teaser" rates for granted and tend to shop for 0 percent credit cards based on these, rather than the permanent or "go to" APR.

 The low APR teaser rates (so called because they lured card members into taking the credit card offers) were pioneered with the advent of the monoline bank -- a bank that only issued credit cards and didn't take deposits or make other types of loans. This new breed of credit card bank came on the scene in the late 1980s and made full use of newly available consumer credit databases to make targeted offers to different populations based on risk.

The 1980s were also the first time that mass direct mail campaigns were used to solicit millions of consumers for credit cards across the United States. Low interest introductory rates were intended to be a novel but temporary marketing gimmick, but they have proven to be an ongoing cost of doing business for the credit card issuers. Unless you revolve a credit card balance from month to month, even a 0 percent credit card intro rate isn't that appealing, but if you are transferring balances from another high rate credit card or need to do some short-term borrowing it can really provide some much-needed financial breathing room.

To comment on this story, write Editors@CreditCards.com.

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Published: September 18, 2005


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