Credit Card Teaser Rate
Definition of 'Credit Card Teaser Rate'
A lower-than-normal interest rate that a credit card company extends to a new cardholder for a fixed period. Credit card teaser rates are a tool for attracting new customers. The best possible teaser rate is 0%, but any rate below the card issuer’s usual rate could be considered a teaser rate. Under the 2009 CARD Act, teaser rates must last a minimum of six months; creditors might offer them for periods as long as 24 months.
Investopedia explains 'Credit Card Teaser Rate'
The availability of teaser rates is influenced by economic conditions, the rates credit card companies pay to borrow and consumers’ creditworthiness. Teaser rates tend to be more available when the economy is doing well, borrowing costs are low and consumers are paying their bills on time. For example, teaser rates became less common during the Great Recession in 2008, but creditors began offering them again as conditions improved.
Consumers who receive a teaser rate on a new card must be careful to not let the low rate influence them to make poor spending choices. A consumer who uses a 0% teaser rate as a rationale for not paying his credit card balance in full each month might find himself with a balance so large that he can’t pay it in full at the end of the introductory period. He might have made those purchases with the idea that he would not pay any interest on them. Instead, after the teaser rate expires, he will end up paying off the balance at a much higher interest rate, perhaps between 10% and 26% depending on economic conditions and the borrower’s credit score. This is the very scenario that gives credit card companies an opportunity to make back the money they lost in charging a low introductory rate.