What Is a Teaser Rate for Personal Loans?

By Jackie Lam. January 13, 2025 · 8 minute read

This content may include information about products, features, and/or services that SoFi does not provide and is intended to be educational in nature.

What Is a Teaser Rate for Personal Loans?

You’ve likely heard of a book or movie teaser, which provides a sneak peek at the soon-to-be-released novel or film. But a teaser rate for financial products is different. Teaser rates are promotional rates designed to entice potential borrowers to sign up for a personal loan, credit card, or mortgage.

Here, we’ll cover how teaser rates work, their potential pluses and minuses, and how to compare teaser rates to standard rates.

Key Points

•   Teaser rates offer lower interest to attract borrowers.

•   Promotional rates typically last 6 to 12 months, occasionally longer for mortgages.

•   Borrowers can save on interest and pay off debt more quickly.

•   Higher rates and payments follow the teaser period, posing risks.

•   Evaluate long-term costs by comparing teaser and standard rates.

Definition of Teaser Rates

The teaser rate definition is as follows: Also known as start rates or initial rates, teaser rates are introductory rates that attract borrowers to sign up for a loan, credit card, or other form of financing. They’re usually found with adjustable or floating-rate loans. Because they’re promotional rates, they’re initially much lower than the standard rate.

The key phrase with teaser rates is that they’re a “promotional rate,” so they aren’t meant to be forever. This rate depends on the lender and the type of financing, and it usually lasts anywhere from 6 to 12 months. The teaser rate can last as long as 10 years for longer-term loans, such as mortgages. After the teaser rate period ends, the rate will usually move to a standard rate.

Here’s a teaser rate example: Let’s say you get an unsecured personal loan with a five-year repayment term. For the first 12 months, you’ll enjoy a teaser rate of 8.00%. Then, after a year of monthly payments, the teaser rate period will end, and the standard rate of 14.00% will come into effect. That 14.00% interest rate is what you’ll be paying for the remaining four years of the loan term.

Another example: For credit cards, you get approved for a zero-interest promo period for the first 18 months after opening the account. Then, after 18 months, you’ll pay the standard APR, which might be 24.00%.

How Teaser Rates Work

As mentioned, teaser rates, or initial rates or start rates, are interest rates that a lender or creditor advertises to get someone to sign up for that loan or credit card. Teaser interest rates are usually much lower than the standard rate and can last anywhere from six months to several years.

After the promotional rate ends, the standard rate usually kicks in. While teaser rates are most commonly found among credit cards (e.g., a 0% interest introductory rate) and adjustable-rate mortgages (aka ARMs), they can also be found with personal loans.

They’re often advertised with prequalified offers, which lenders will send in the mail after an initial screening of your basic financial information. They might also do a soft pull of your credit.

Recommended: Are Personal Loans Bad?

Advantages of Teaser Rates

While a teaser rate is attractive for obvious reasons, it has its advantages and drawbacks. Let’s look at the potential pros first:

•  Save on interest fees. Probably the biggest advantage of a teaser rate is that you’ll save on interest fees. A lower rate for a set period means you’ll owe less interest on the loan or credit card, so the money borrowed will cost less.

•  Can motivate you to pay off the loan quicker. If you’re able to secure a very low or zero-percent interest rate for a set period, it could encourage you to speed up your payment plan and deposit larger amounts so you can knock out the balance owed faster. Plus, lower initial costs can help you pay off your debt faster. Of course, this is if you have the means and discipline to pay off the card balance or loan.

•  A good option for debt consolidation. If you have a low initial interest rate, you can transfer your existing balances on high-interest cards to a credit card debt consolidation loan. When you consolidate your debt, you can either lower your monthly payment, lower your interest rate, or both.

Potential Risks and Drawbacks

Now, let’s look at the potential downsides of teaser rates:

•  The rate will eventually increase. All good things must come to an end, and so it also goes with initial rates. Once the teaser rate promo period ends, you might find yourself with a significantly higher-than-average interest rate.

   If that’s the case, depending on how high a balance you have left, the interest rate, and the repayment period, you could actually end up paying more each month — not to mention more in fees.

•  A potential jolt to the budget. If you’re not prepared for the higher monthly payments once the teaser rate ends and the standard interest rate goes into effect, prepare to feel a bit of a shock to your budget. You’ll want to adjust your spending to ensure you can afford your new debt load. For instance, scale back on expenses or find ways to rake in more money.

•  It might cost more in the long run. Even with an initial promo rate, you might end up paying more in interest for that loan than if you got a loan with no teaser rate.

•  A low initial intro rate might encourage overspending. It could lead you to take on more debt than you need. It’s important to only take out a loan amount that you can afford and that is necessary. A personal loan calculator can help you understand what your potential monthly payments will be.

Comparing Teaser Rates to Standard Rates

When shopping for personal loans, you’ll want to look at the teaser rate against the standard rate. Then, you’ll want to check how much you’ll be paying in interest fees and monthly payments with the teaser rate, versus how much you’ll be paying in interest and monthly payments with the standard rate. That way, you’ll see the total cost of the loan.

If you’ve landed a no-interest introductory period, you’ll want to see if you can pay off the balance before the standard rate kicks in. Otherwise, you could pay more overall in interest.

Suppose you anticipate that the repayment period of a loan with the standard rate will be much longer than the initial interest rate repayment period. In that case, you might pay more in interest than you would if you had a personal loan with an interest rate that hovered somewhere in the middle. Compare loan rates and terms to see what makes the most financial sense for you.

Recommended: Personal Loan Guide for Beginners

What to Consider Before Applying

If the thought of getting a personal loan with a teaser rate has piqued your interest, here’s what to mull over before you jump in with both feet:

•  Teaser rate versus the standard rate. Compare the two rates against each other and figure out how much you’d save on interest during the initial period of the loan. You’ll also want to do some basic calculations to figure out what you’ll be paying in interest once the teaser rate switches to the standard rate.

•  Fees. Fees add to the total cost of the loan. For personal loans, standard fees include origination fees, late fees, and early payoff penalty fees. Origination fees are usually one-time and can be anywhere from 1% to 6%, and sometimes up to 10%.

•  Repayment term. How long you have to pay off the loan or credit card impacts how much you’ll be paying in interest fees throughout the life of the loan. The longer the term, the higher the odds you’ll pay more interest.

•  Monthly payments. As mentioned, you’ll want to be prepared to tackle heftier monthly payments once the teaser rate period ends and the standard rate kicks in. If you are trying to pay off the loan before the initial interest rate ends, be sure you can afford those monthly payments and feasibly pay off the loan or balance in time.

The Takeaway

A teaser rate for personal loans can be a great way to save on interest fees. However, you’ll want to carefully assess whether it will save you money in the long term. Plus, you’ll want to be prepared to make larger monthly payments once the teaser rate ends.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What is a teaser rate, and how does it work for personal loans?

A teaser rate is an initial interest or promotional rate that’s often significantly lower than the standard rate. It is designed to entice borrowers to get a personal loan with that specific lender.

How long does a teaser rate typically last on a personal loan?

The teaser rate on a personal loan usually lasts for a short period, anywhere from 6 to 12 months.

What happens when the teaser rate expires on a personal loan?

When the teaser rate expires on a personal loan, it kicks over to the standard rate, which is usually much higher than the initial promotional rate.

Can a borrower lock in a teaser rate for the entire loan term?

No, the teaser rate is intended to attract a borrower to open the loan with that particular lender. It’s not possible to lock in a teaser interest rate for the entire loan term.

Are there risks associated with teaser rate loans?

When you take out a personal loan with a teaser rate, you might take on more debt than you can reasonably handle or is necessary. Another potential risk is that you pay more overall interest fees. And once the standard rate kicks in, you might experience a huge jump in monthly payments.


Photo credit: iStock/Jacob Wackerhausen

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