Significance

• Low introductory rates for purchases or balance transfers woo customers into thinking they have months to pay off balances. However, if the balance is not paid in full, the borrower could be hit with much higher interest rates once the introductory period ends.
  
  

Function

• Many borrowers use low introductory rate offers to transfer balances from a higher interest rate card to a lower one. This causes a new line of credit to be opened, which can lower the borrower's credit score. Additionally, if the borrower repeatedly transfers balances, the impact could be quite damaging to his credit score.
  
  

Considerations

• If used correctly, a borrower could pay off the debt owed within the introductory period and save significantly from not having to pay a higher interest rate over a longer term. Additionally, this may allow the buyer to buy a product without ever having to pay interest on it, if the items is purchased and paid off during the introductory period.
  
  

Misconceptions

• Borrowers tend to miss the fine print that limits the introductory period and are surprised by rises in interest rates. Also, many borrowers simply open the new card for the introductory rate and do not consider the future rate, which could be much higher than the borrower had with another card.
  
  

Prevention/Solution

• The best way to use an introductory rate on a new card is to use the low interest rate period to transfer balances and pay the debt off in full to reduce overall interest expense.