Short- or long-term purposes influence rate choices
The debate regarding low introductory APR credit card specials versus cards with low regular (or standard) APRs has no clear winner. Much of the reason stems from your purpose for having one credit card or another.
At first, you may believe that the purpose should be obvious: Having a line of credit available to you whenever you need it is the most popular, but not the only reason to have credit cards.
The answer can be found in the details
For example, say you've decided to renovate your kitchen. You estimate the project will take six to nine months. You further decide to get one or more new credit cards with low introductory APR offers, regardless of their regular APR issues. Since you only project to need this card for the short-term, you might opt for the best introductory APR at the expense of all other considerations.
Another situation might look like this: You have a substantial balance on another credit card with a high interest rate. You've decided to transfer the outstanding balance to a new, lower regular APR account. In addition, you are quite sure you will be unable to pay off the balance you are transferring during the low introductory APR period.
The longer-term purpose of this credit card indicates that you should examine the regular APR much more closely than the low introductory special. You will typically save money on finance charges with a lower regular APR than a special deal just for balance transfers.
From these two examples, it is apparent that your focus will rest on either the low introductory APR for a credit card that has a short-term purpose or the regular APR when the card is destined for long-term use.
How to compare the impact of introductory and regular APRs
You don't need any sophisticated mathematical theory to make a quick comparison of the difference between low introductory APRs and regular APRs. If you are going to use a new credit card over the long-term, you should be able to compare the terms offered and pick the best one for you.
First, decide if you want to transfer one or more existing outstanding balances to your new credit card. Are there special balance transfer offers available? No interest for six months or one year on balance transfers? Very low APR on transferred balances? Specials like these may affect your choice of credit cards.
Next, assume an average balance that you might have on your new credit card over the first four or five years. You might decide that your average outstanding balance at every month end will be around $1,000 or another realistic amount.
Calculate an estimated finance charge each month during the introductory low APR terms, usually six months or one to two years. Multiply your estimated balance ($1,000) by your introductory interest rate. Then divide by 12, which gives you an approximate monthly finance charge. Then multiply the projected monthly finance charge by the number of months of your introductory APR (if it applies for 18 months, multiply by 18).
Then, multiply your estimated average balance by the regular APR and use the same formula as above. Carry your calculations out to four or five years to be fair to yourself. Add the finance charges you estimate for the introductory APR and the regular APR period. Add to that any balance transfer interest or fees to arrive at a total estimated finance charge.
Using the same process, compare the terms of other credit cards you're considering. Those with the lowest total finance charges should be the ones you evaluate more seriously. Even if your estimated average balance is lower or higher than you projected, the relationship between introductory and regular APRs will remain constant.
Which is typically the best option to choose?
The answer to the magic question, "Which is the best option – a low introductory APR or low regular APR?" is simple. Find a credit card with both! While the search for a credit card meeting both criteria may pose a challenge, you might find one card that offers low APRs for both categories.
By using the simple calculations noted above, you will arrive at a series of numbers that estimate your total finance charges by "blending" a low introductory APR with a regular APR over some period. For credit cards that you plan to use over the long-term, the lowest total finance charges should be the best combination for you.
See also: Compare low APR credit cards