Who benefits from credit card teaser rates?

When a bank or a different financial institution offers someone a credit card with a 0% annual percentage rate ( APR), on the surface, it looks like a great deal., especially if you are disciplined and can use them correctly. For many people, they can be a tremendous money-saving tool. But it’s important to remember that banks and credit card companies are in business to make money.

How can credit card companies benefit from offering consumers 0% APR credit cards I want to describe in the industry as teaser rates?

Firstly, it’s important to remember that the bank and credit card companies will make money from interchange fees, that they charge retailers every time you use your credit card. They also profit from balance transfer fees. And more importantly, they’re gambling on customers not paying off their balance before the teaser rate period ends, as the customer will then be subject to regular interest rates and even fees.

As long as the minimum payment is made on time, the balance on a teaser rate card is 0% APR, will not accrue any interest. You may be subject to an annual fee, but most credit card companies no longer charge these.

Before you take the offer of a teaser rate credit card, you have one fundamental question to ask yourself.

Am I a ‘Transactor’ or a ‘Revolver’?

A “transactor” is a customer who always pays their monthly credit card balance in full, meaning that the credit card company will only make money from their customer’s interchange fees. These consumers are smart and use the teaser rates as you should, and they get an interest free ride during the grace period. They also learn how to benefit from the credit card reward systems and generous one-time bonuses.

A “revolver” is a credit card customer who is happy to let their credit card balances carry from one month to the next and are not worried about letting interest and fees build up as balances increase.

Which are you? A revolver or a transactor? Can you guess whom the credit card company would prefer you to be?

While credit card companies are happy to take any customer with a good credit rating, the ones they covet, most are the ‘revolvers.’ People who are glad to make the minimum payments are far more profitable, and teaser rates credit cards were explicitly designed to attract as many ‘revolvers’ as possible.

Banks and credit card companies expect a certain percentage of revolvers to overestimate their own ability to manage your finances. Too many people get misled into assuming they’re winning with their teaser rates credit cards, But statistics tell a different story, credit card debt is mounting year after year. Americans owed more than 1 trillion dollars as of 2019 in revolving credit card debt.

You have a decision to make

If you have a proven record of being a ‘transactor,’ having the ability to be financially disciplined means you can easily take advantage of 0% APR teaser rates. Getting one or more of these credit cards makes common sense.

On the other hand, if you feel you’re in danger of being a ‘revolver’ or you already know you are one. If you struggle to overcome bad spending habits and behaviors, maybe teaser rates credit cards are best avoided.