Why you should look at duration of zero rates

Zero interest rates are a very popular way of marketing credit cards.  However for obvious reasons these credit cards can not continue forever.  So it is important for a borrower to look at the duration of the zero per cent interest rate.

The reason why zero per cent interest rates are offered is that it is a very effective way of getting in new borrowers.  Credit card companies have found that in order to get the right type of customer they needed to market intensively.  The ideal type of customer was one that was unlikely to default on the credit card but highly likely to both spend on a credit card and to carry over the balance from one month to the next.  This involved some intensive marketing.  It was found that it was cheaper to attract some of these clients through zero interest rate credit card deals.

As credit cards make most of their money through charging interest on the amount that is borrowed on the credit card, as well as annual fees and merchant charges, then it is clearly unlikely that this could remain a profitable business if it were continued forever.  This is why the credit card that offers a low interest rate will only offer a low interest rate for a number of months.

When a credit card offers an interest rate for a number of months then this should be reasonably prominently displayed in any advertisement for the credit card.  Before taking out a zero per cent credit card then the time at which this runs out should be noted.  If comparing zero per cent credit cards then the best metric for most people to compare these credit cards on is not the interest rate that is charged, which will be the same, but for how long the interest rate will be charged.  If there is a large discrepancy in the rates that will be charged at the end of the time then this should also be compared.

It is at times possible to replace one zero interest rate credit card with another one, but this is very hard with short term zero per cent interest rate credit cards.  This is because the credit history of a person notes whenever they get a new credit card.  This can mean that it will be harder to get a zero per cent interest credit card if there are lots of changes.