Are teaser loans a helpful financial product or a dangerous marketing trick?

Teaser loans can be a helpful financial product, allowing customers some initial leeway while they rearrange their finances, but only if lenders accept their duty to market and lend responsibly. Teaser loans can become dangerous marketing tricks when lenders take advantage of consumers.

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A teaser loan is a loan that offers a low initial interest rate that then changes to a market or above-market rate after the introductory period. The introductory rate is generally applied for a few months in the case of personal loans, but it could last for a few years in the case of a mortgage or other substantial loan.

Whether teaser loans are a useful product or a dangerous marketing trick depends very much on your situation. The comedian Bob Hope used to say that a bank will lend you money if you don't need it, and much the same point can be made about teaser loans. A financially astute customer who has calculated the level of repayments over the entire term of the loan and knows that she can afford them may benefit from the low initial rate. She may also be able to transfer the loan to receive another low rate elsewhere after the initial period expires. However, a customer who simply considers the initial rate and does not think about the future may borrow more than she can afford and then struggle to repay the loan when the repayments rise.

Although personal financial management is a responsibility of the individual, it is also the duty of responsible lenders to ensure that they do not market aggressively or lend money to people who will be unable to pay or clearly do not understand the nature of their obligation.

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