Loss Leader

A loss-leader is when a company offers a product or service at a price well below the actual cost of production. Typically, a supermarket may sell baked beans at 5p per can, when it actually costs them 7p and to buy them from the manufacturer. Although they are selling products at a loss, the aim is literally to lead people into the store, so they will buy a large range of other products at the full price. In the financial services industry, credit card balance transfers are a particularly popular loss-leader.

Low interest rate enticements are offered by many card issuers in order to encourage you to apply for their cards. Many banks also offer massive incentives to students to open new accounts, as they know that the lifetime value of each customer runs to many thousands of pounds.

When shopping for any financial service or other product, always be on the lookout for loss-leaders. If you are aware that the rates being offered are there to tempt you to higher prices at another time or on another aisle, and take steps to ensure that you're not suddenly lumped with massively increased charges, you can use loss-leaders to your benefit.

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