When a Credit Card’s Low Rate Isn’t

Credit cards low rate, Zero rate credit card, Credit card 0 interest rate

Have you been getting offers in your mail or email offering amazing introductory rates? Zero rate credit card offers seem to be falling from the sky like pennies from heaven. We bet you’ve seen plenty, and they can be tempting.

However, jumping on to the teaser rate bandwagon without reading the fine print can have some very unpleasant side effects, even with the new credit card laws in place.

Hidden Fees

When the Obama Administration signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 into law, it hobbled the ability for credit card companies to sneak in many rate increases and fees without notice.

The new regulations require issuers to inform cardholders no less than 45 days in advance for:

  • Increases to your current interest rate
  • Making changes to certain fees, such as cash advance fees, late fees and annual fees or
  • Any other significant changes to the credit card terms

However, there are fee and rate hikes that don’t require the 45-day advance notice including:

  • Variable interest rates that are tied to an index if that index goes up or down
  • The expiration of a teaser rate, which is disclosed to the cardholder before signing on
  • If a cardholder is in a workout agreement and fails to meet the terms

 Teaser Rates

A teaser rate is a lower-than-normal-introductory rate offered by the credit card issuer to new cardholders for a limited time. The introductory credit card’s low rate often applies to only one aspect of a credit card’s use. For example, it might only apply to balance transfers or purchases or cash advances.

The CARD Act has addressed teaser rates, as well. The minimum amount of time that a teaser rate can be in effect is six months.

In addition, your payments must be applied to the highest interest rate first. For example, say you have a shiny, new low or zero rate credit card. That nice teaser rate only applies to balance transfers, which you quickly take advantage of. You also make some purchases and/or cash advances, but they go by the higher rate.

Before the CARD Act, your issuer would have been able to apply your payments only to the credit card’s low rate and completely neglect the higher interest rate transactions, allowing huge amounts of interest to accrue.

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