A promotional rate is a temporary, lower-than-usual interest rate offered by a lender to attract new customers or encourage borrowers to sign up for a specific product. It usually applies for a limited time before reverting to the standard rate.
How It Works
Promotional rates are often advertised for credit cards, lines of credit, or mortgages. For example, a lender might offer a mortgage with a promotional rate for the first six months, after which the rate increases to the normal fixed or variable rate.
Benefits
- Lower initial cost: Saves money in the short term by reducing interest charges.
- Attractive offers: Can make a loan or credit product more appealing to borrowers.
Drawbacks
Since promotional rates are temporary, borrowers must prepare for higher payments once the rate ends. Without careful planning, this can lead to financial strain when the regular rate applies.
Final Thoughts
Promotional rates can provide short-term savings but should be viewed as temporary incentives rather than long-term solutions. Borrowers need to check the standard rate and terms before committing.