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Credit Cards > Lowest Interest
Read the fine print before transferring your credit card balance
PATRICIA LAMIELL, AP Business Writer. Associated Press.
Copyright Associated Press
ANEW YORK (AP) - Consumers juggling holiday bills may be tempted to transfer their credit card balances to a new card with a low, temporary "teaser" rate, but they better read the fine print first.
It may take a magnifying glass, for instance, to discover it's more difficult and expensive to get cash advances on some cards or that some issuers actually impose fees on transferred balances.
A few agreements allow the issuer to substantially raise the interest rate, even during the teaser period, if a cardholder is just a day late on a payment or slightly exceeds the credit limit. Some issuers charge late fees as high as $25.
A few issuers are eliminating teaser rates altogether.
"The big push right now is to fixed rates, but not everybody's doing it," said Chris Battenhorst of BAIGlobal Inc., a credit card market research firm in Tarrytown, N.Y.
The tactics are an attempt to weed out "card hoppers," who charge against a new card with a low teaser rate, in some cases as low as zero, to pay off a higher-interest card. Once the teaser rates expire - typically in six or 12 months, but in some cases as little as three months - they hop again to another teaser-rate card. This keeps their interest rate on revolving accounts far below market rates.
"I know one guy who actually financed his car that way," said Bruce Brittain, a credit card analyst in Atlanta. "But some of the issuers are wising up to that, and they're putting some restrictions on it."
First USA, now the largest credit card issuer after parent company BancOne Corp. merged with First Chicago NBD, began charging 2 percent to 3 percent fees on balance transfers on Nov. 1.
The Wilmington, Del., issuer also has put out a card with a fixed rate of 9.99 percent.
Other issuers are testing fixed rate cards. Capital One Financial Corp., based in Richmond, Va., introduced a card with a fixed annual percentage rate of 9.90 percent.
Providian Financial Corp. of San Francisco is finishing a mailing of come-ons for cards that start at zero percent and jump to a fixed rate of 7.9 percent after three months. But its newest product has a 7.9 percent fixed rate for new purchases.
The company negotiates with each cardholder a separate rate for balance transfers, said David Alvarez, executive vice president in charge of unsecured lending.
Issuers dislike card hoppers because they close their accounts before issuers get the chance to recoup all their marketing costs. Between $70 and $90 is spent on advertising and mailing to acquire each new customer.
"The big ones (issuers) are losing millions of dollars per year," said David Gagie, marketing director at the Auriemma Consulting Group in Westbury, N.Y. "The solution lies in finding ways of acquiring balances and making them (customers) stick around."
Some issuers are adding rewards and other enhancements to their cards, or marketing additional products like home-equity loans that will make cardholders want to stay.
For now, though, teaser rates remain popular. Competition is as fierce as ever, and it's cheaper to find a new customer through low come-on rates than it is to buy one as part of an existing portfolio, said Providian's Alvarez.
And interest rates remain low, making the issuers' cost of funding low. "It's going to be some while before the tried and tested approach of using teaser rates disappears," Gagie said.
Many issuers also have figured out how to fashion card agreements that can make the card profitable even before the teaser rate expires.
Even cardholders who read the fine print and know what they're getting into, may take a card on the mistaken assumption that they will never pay late or go over their limit.
"They think, 'What, me, be late on a payment? Never,'" said Robert McKinley, president of Ram Research Corp. in Frederick, Md., a credit card research firm. "That's how these cards are sold."
End adv weekend editions Dec. 26-27
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
Text Word Count 665
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• Credit Cards > Lowest Interest Credit Card Articles Archive
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