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What is a Balance Transfer APR?

M. McGee
M. McGee

An annual percentage rate (APR) is the percentage of interest applied to an account over the period of one year. A balance transfer APR is a special APR applied to debt that has been moved from one credit card account to another. Balance transfers are a common way of getting new customers to move to a specific card. As a result, there are typically two types of balance transfer APR on most credit card accounts; the teaser, or introductory rate, and the permanent rate.

Standard APRs are confusing to many people. Most credit card companies express their percentage rates as an APR. This amount, divided by 12, is the amount of interest applied monthly to a credit card balance. The amount of interest added to the leftover balance is included in the following month’s value, meaning the cardholder pays interest on interest. As a result, the monthly interest is always higher when accrued month-by-month than if the APR was applied once per year.

Some credit card companies offer an introductory APR on balance transfers.
Some credit card companies offer an introductory APR on balance transfers.

A balance transfer APR is a special APR that only applies to debt moved to a credit card from a different card. This interest rate is often different from the standard APR on the card. This further complicates credit interest calculation, as the single lump of money on the card is actually two separate amounts that earn compound interest at different rates.

Balance transfers are one of the most common incentives offered by credit card companies. These transfers are considered a good way of moving debt from a competitor. It isn’t uncommon for a balance transfer APR to go as low as 0%. The companies assume that while individuals are paying off the transferred debt, they will accrue more debt at the standard rate.

These low-balance transfer rates are usually temporary. Since credit companies are legally required to disclose interest rates, this means they will often have two rates listed for balance transfers—the temporary introductory rate and the permanent rate. The temporary rate is in effect for a certain amount of time, and then the permanent rate begins.

A temporary balance transfer APR is very straightforward. Any debt moved onto that card has a specific rate for a specific amount of time. Problems can arise, though, often through misunderstanding of the basic credit contract. Cardholders must continue to make monthly payments based on their debt amount, even if the APR is 0%. If they fail to do so, the temporary rate may be rescinded, and the normal rate takes over. Also, when the introductory rate ends and the permanent rate begins, this rate applies to all balance transfers currently on the card as well as any new ones.

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    • Some credit card companies offer an introductory APR on balance transfers.
      By: Kreative Photography
      Some credit card companies offer an introductory APR on balance transfers.