If you end your introductory period with a debt, the ongoing APR will start to be calculated on the remaining balance. The higher the APR is, the more the debt will cost you.
The Bank of America content was last updated on August 1, 2022.
The ultralow, time-sensitive promotional interest rate that’s attached to some credit cards is like a honeymoon. Once you’re back home, the real relationship begins.
The credit card issuer will increase the interest rate on your card to the ongoing APR, and it will be applied to a balance that you have left on the account.
Whether you’re considering getting a credit card with an introductory rate or already have one, know how the ongoing APR can affect your bottom line – and the ways you can minimize any negative effects.
What is an introductory APR?
There are two types of credit cards that have temporary low interest rates that precede higher ongoing rates:
- 0% APR credit card – These credit cards typically offer a 0% APR for six to 18 months, from when you first open the account. During this time, you can make purchases with the card, send at least the minimum payments and not be charged any interest on the accumulated debt.
- 0% APR balance transfer – Instead of the 0% APR being applied to purchases, these credit cards allow you to move high interest debt onto a new account with a 0% intro APR. The issuer won’t charge you any interest on the transferred debt during the introductory period, which typically lasts for six to 21 months. Most charge a fee of between 2% and 5% of each balance transfer, which is tacked on to your total balance.
It’s hard not to gravitate toward any kind of 0% APR credit card, says credit card expert John Ulzheimer. “Most people fall in love with these teaser rates. Of course, they’re great. But they are only half the story.”
What is an ongoing APR?
The other half of the interest rate story begins when the promotional 0% APR time frame is up. At that stage, the ongoing APR (also known as the real, regular, contract or standard rate) will be attached to the account. What the rate can be appears on the credit card issuer’s information page or the card’s terms and conditions.
“After the introductory APR offer ends, it goes to the contract rate, which is set when someone opens an account,” says Don Vecchiarello, a spokesman for Bank of America. “We would not reevaluate the rate as the offer is ending. The contract or standard rate is usually based on creditworthiness.”
For example, the Bank of America® Customized Cash Rewards credit card has an introductory 0% APR on new purchases for the first 15 billing cycles, then an ongoing variable APR of 16.24% to 26.24%. The Discover it® Cash Back card offers 0% intro APR on new purchases and balance transfers for 15 months, then an ongoing variable APR of 13.49% to 24.49%.
“Every credit card company employs different strategies in assigning rates, but most will invariably use some metric of credit risk like the FICO score in their rate assignment,” says Huynh. “In general, the higher the FICO score, the lower the APR.”
FICO scores start out at 300 and go to 850, and to qualify for most 0% APR cards, you’ll need scores that are at least 670. To claim the lowest ongoing rates, your scores may need to be exceptional (above 800).
Still, this doesn’t mean the ongoing rate you get will remain constant.
The majority of credit card issuers use variable rates rather than fixed. Therefore, your APR will fluctuate with the index that the rate is tied to, such as the prime rate. Variable interest rates can change at any time, though there may be a cap on how high or low the rate can go. Also, if you fall delinquent on the account, the issuer may raise the rate to a punitive APR, which can be considerably higher than the ongoing rate.
The cost of high ongoing APRs
If you end the introductory period with a debt, the ongoing APR will start to be calculated on the remaining balance. The higher the APR is, the more the debt will cost you.
Imagine you ended a 0% APR introductory rate with a $5,000 debt and only paid the minimum until the account is at a zero balance:
- 11.99% ongoing APR – Nine years and five months to pay off, with total interest costs of $1,599
- 22.99% ongoing APR – 13 years and one month to pay off, with total interest costs of $4,392
These figures are only for the balance you previously acquired. If you continue to charge with the card, any debt you accrue will be added in and the ongoing APR applied.
For this reason, it’s best to delete any debt before the ongoing rate kicks in.
How to reduce the ongoing APR
If you have a balance due after the ongoing rate begins, make every effort to pay it down quickly, says Ulzheimer. “Credit cards aren’t meant for long-term debt. They’re payment tools that, ideally, you should pay in full.”
Instead of sending just the minimum, send as much as you can every month to be free of the debt, and then keep it that way. “When you owe nothing, the ongoing APR will be just for entertainment purposes,” says Ulzheimer.
Good intentions aside, it’s not always possible to pay off a debt promptly. In that case, consider alternative strategies to escape the financial fallout of a high ongoing APR:
- Sell unnecessary things. If you have anything of value that you can easily part with – jewelry, sports equipment, electronics – sell the items and apply the proceeds to your debt. The lower you can get the balance, the less the financing fees will be.
- Go for another 0% APR credit card. You can apply for a 0% APR balance transfer card and move the debt over. This method can buy time and save money, but beware. There’s only so many times you can do it before you hit the wall. “I generally don’t recommend that consumers ‘balance surf’ as the constant cycle of searching and opening new credit can have an impact on their credit score,” says Huynh. “In general, consumers should only apply for the credit that they truly need.”
- Consider a debt consolidation loan. If you can’t pay a substantial credit card debt off within a year, Ulzheimer suggests transferring to an unsecured loan that comes with a lower rate than what the credit card issuer is charging. Shop around for what lenders are offering. Credit unions, especially, give competitive rates on debt consolidation loans to their members.
- Negotiate the ongoing rate. Because the rate you received was largely dependent on what your credit scores were when you first applied, find out what they are now. If they’re better than they were, contact the credit card issuer and ask if they’re willing to lower the rate based on your improved credit rating. But do your research first. “I have always been blown away at how much information people are willing to share online,” says Huynh. “For example, if the cardholder goes to FICO Forums they could start a thread to gather information to see the typical APRs other consumers are receiving based on their FICO scores. That information can help the cardholder determine a reasonable rate to negotiate to.”
Use credit cards with introductory rates to your advantage by anticipating the ongoing APR. Eventually that rate will rise, so be prepared. Mark your calendar with the date it’s set to increase, and keep a close watch on your balance.
Drive it down to the best of your ability. The last thing you’ll want is a lingering liability with a high interest rate that makes payoff difficult and expensive.