Frequently Asked Questions about Low Interest Credit Cards
Why would I choose a Low Interest Credit Card?
If you usually don't completely pay off your credit card balance each month, then you have what is known as a revolving balance on your credit card. If this is the case, then it's highly recommended that you choose a credit card that charges the lowest possible interest rate. This type of card is commonly known as a low interest rate credit card: a credit card that focusses on low interest rates over other credit card features.
By choosing a low interest rate credit card, you will pay less interest on the credit card debt that you owe. This should allow you to pay off more of your debt, and less of the interest, saving you money in the long run.
How do I know a Low Interest Credit Card is right for me?
- If you are a regular credit card user;
- If you pay your minimum payment on time, but usually still carry an outstanding balance;
- If you are a new credit card user and are unused to dealing with credit;
- If you have a good credit rating.
Am I charged the same Low Interest no matter what I use the credit card for?
The 'low interest rate' offered on a low interest rate credit card refers to the purchase rate on that card. So, any purchases you make on your credit card will be charged at that low rate of interest. Purchases can include items you pay for in store, over the phone or online. This purchase rate is also applied to bills and other payments paid via Direct Debit.
Typically, you will be charged a different rate of interest (usually higher) for cash advances made on the credit card, buying foreign currency, using your credit card overseas, or for making gambling payments.
How does a Low Interest Credit Card work?
When you use a low interest rate credit card – as with any credit card – you are being provided with credit by your credit card issuer. Until you pay back the amount you owe, you will be charged interest on that amount.
The interest rate you see when comparing credit cards is the annual percentage rate (APR). This is the amount of interest the balance would attract over the course of a year. So if you had a 10% interest rate and the balance was $1000, then the interest owed would be $100, making the total amount owed $1100.
However, the interest you owe is actually calculated on a daily basis – on a daily percentage rate. This is APR% divided by 365. This becomes important if you do not pay off your credit card balance in full each month.
Interest on any unpaid debt will be charged at the daily percentage rate each day after interest-free period has ended. If the interest rate on your credit card is high, then then amount you pay in interest will be higher. By choosing a low interest rate credit card, you can help to lower the amount paid in interest, meaning you are charged less over time.
There can be a lot of rates attached to credit cards – what do they all mean?
Purchase Rate
This is the interest rate charged on purchases made on a credit card, and is usually the rate referred to on a low interest rate credit card. Purchases made online, on the telephone, and in store, as well as bills and payments made via Direct Debit will be charged at the purchase rate.
Cash Advance Rate
If you use your credit card for cash advances by taking money out at the ATM, you will be charged interest at the cash advance rate. This is usually higher than the purchase rate. Transferring money from your credit card to another bank account, buying foreign currency, using your credit card overseas, or using your card to make gambling payments, will usually all be charged at the cash advance rate.
Introductory Rate
Used to attract new credit card customers, special introductory offers can provide a low balance transfer rate or purchase rate, or a combination of the two. The introductory offer will last anywhere from 3-12 months. At the end of the introductory offer, the interest rate will revert to the cash or purchase rate, depending on the credit card.
Will I have to pay an annual fee?
Typically, you should expect to pay an annual fee if you choose a low interest rate credit card. Compare the fees attached to each credit card, and check whether the amount you save on interest outweighs the amount you pay in fees. You can however, find low interest rate credit cards that offer low annual fees or a no annual fee for life. Weigh up the benefits to find the most suitable credit card for you.
Do low interest rate credit cards offer other features?
While low interest rate credit cards mostly focus on rewarding you with low interest rates, there are some cards that offer other benefits as well. Look at how you use your credit card and find the best option for you.
Introductory Offers
Some credit cards will offer you great introductory offers on purchase rates and balance transfer rates. This can be a good choice if you have a large debt on your existing credit card that you want to pay off. Before signing up for one of these credit cards, check what the interest rate will revert to at the end of the introductory period to find out if it's beneficial in the longer-term. Sometimes, choosing a low interest rate credit card with an excellent ongoing interest rate is a better option.
Low Annual Fees
Paying an annual fee is normal when using a low interest rate credit card, but there are some providers who offer low interest rates and relatively low annual fees. Compare all of the credit cards on offer to weigh up the pros and cons of each.
Rewards Programs
If you are interested in earning rewards on your purchases, then choosing a rewards-focused credit card is usually the best option. However, there are some low interest rate credit cards that offer good rewards programs as well. Do your homework and you may find a credit card that offers both.
What are the most important things to consider when choosing a low interst rate credit card?
Obviously, you should choose the credit card that suits the way you spend. Take a look at the way you use your current credit card or the way in which you want to use your credit card in the future, and pick the most suitable option.
If you want to pay off the debt on your existing credit cards, then choose a balance transfer credit card, or if you only use your credit card for emergencies and then pay off the balance straight away, choose a credit card with no annual fee.
If you carry a balance on your credit card each month and your use your card frequently to make purchases, then choose a low interest rate credit card. Here are some features to compare when choosing this type of credit card:
Annual Fees
It is possible to get a low interest rate credit card with low annual fees. To make the most of the savings made on interest, choose a card with the lowest possible annual fees.
Other Fees and Charges
As with any credit card, make sure you read the fine print when you apply for a low interest rate credit card. Always make sure you understand what rates apply to different types of spending to ensure to make the most out of your credit card, and so you don't get a shock when the bill arrives.
Introductory Offers
Weigh up the benefits of introductory offers that give low interest rates on purchases and balance transfers. Sometimes the money saved during the introductory period can be negated by a much higher ongoing interest rate.
Ongoing Interest Rates
The ongoing interest rate on a credit card is extremely important if you carry a balance each month. Choosing a low interest rate credit card with the lowest possible interest, can make a big difference in the amount you will save over time.
Rewards Programs
Low interest rate credit cards can come with great rewards programs. Read the small print to check whether points expire after a certain length of time, or if there is a points capping system in place.
When should I not choose a Low Interest Credit Card?
Different credit cards suit different users, so in some cases, a low interest rate credit card might not be your best option.
- If you use your credit card to make large purchases and then pay them off straight away, then a rewards credit card may be more beneficial.
- If you don't use your credit card that often, then choosing a no annual fee credit card might be a better option.
- If you pay off your credit card balance in full each month, then the interest rate on your card doesn't really apply to you. Choose a credit card that offers better benefits for your situation.
- If you want to consolidate and pay off the debt on your existing credit cards, then you should consider a credit card with a low balance transfer rate.
- If your credit history is not that good, you may find it difficult to get approved for a low interest rate credit card. In this case, you might need to choose a credit card that charges higher interest, and build up a good credit history on that before you are allowed a low interest rate credit card.
Is a low interest credit card suitable for you?
YES
I don't always pay my balance on time
YES
I use my credit card frequently
YES
I don't need lots of extra features on my card
