Zero APR Credit Cards Make Comeback
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Comstock/Thinkstock(NEW YORK) — Credit card issuers are again offering an incentive that had all but disappeared during the recession: Introductory interest rates as low as zero for new customers, with grace periods that run from six months to 18. And the incentives don’t stop there.
Other sweeteners have recently included Titleist golf balls and discounted tickets to NFL games, according to recent surveys of the industry.
When market research company Ipsos examined lenders’ direct-mail credit card solicitations, it found that while in 2009 only 40 percent teased customers with a reduced introductory rate, that figure had risen to 80 percent by the first quarter of 2012.
Zero-rates aren’t being offered just to people blessed with perfect credit, says Ben Woolsey, director of marketing and consumer research for CreditCards.com, a site that helps consumers comparison-shop card rates, grace periods and incentives.
“The card industry has loosened their criteria,” he says. “They were very conservative there for a while. Now they’re starting to explore people with less than perfect credit.”
Is it a buyers’ market now for credit cards? Woolsey says yes.
“Consumers are more in the driver’s seat now than at any time in several years,” he says.
The reasons, he and other experts say, are various. They include issuers’ improving financial health. Though loss rates on cards spiked during the recession, they now have declined to “historic lows.” Thanks to the Fed’s keeping interest rates near zero, issuers’ borrowing costs, too, are at historic lows.
Issuers, says Woolsey, feel confident about the near-term future.
“That’s why you see these pretty aggressive campaigns,” he says.
An August survey by CreditCards.com of 102 of the most widely held cards found 53 had a teaser rate of some sort. Of those, 49 had a rate of zero, says Woolsey. Some cards apply the introductory rate only to balances transferred from other cards; others apply it only to new purchases. But a lot of cards, says Woolsey, apply the rate to both.
During the recession, zero-rate promotions dried up. Card companies, says Woolsey, suffered steep losses and had to pull back on marketing. But since late 2010, “They have come roaring back. Now they’re at the same levels as prior to the recession,” he says.
The same holds true for the length of no-interest periods. Before the recession, Woolsey says, they were generous — some up to 24 months. After the housing bubble burst, the period dropped to six months or disappeared altogether.
Now, a full year is common, “and we’re starting to see longer ones.” The lengthening periods, he says, “are a sign that issuers are feeling more confident about the future and about the credit risk of new account members.”
Copyright 2012 ABC News Radio