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Get some breathing space and financial flexibility by using a low interest card to cut the amount of interest you pay on purchases and carry a balance on your account.
Paying off your credit card’s balance in full at the end of the month means reaping all the benefits and paying none of the costs – especially since the interest charged on balances can be so staggeringly high, averaging about 17% per annum in Australia. For those that have trouble paying off their cards on the due date, and for those that have recently made a large purchase, a low interest rate card could be the answer to climb back out of debt and keep it manageable in the future.
Be aware that the low interest rate advertised for a card usually refers to the purchase rate, while the cash advance rate will typically be much higher. The low interest rate is not necessarily the same between new purchases and balance transfers. In some cases, if you carry a balance, a low interest balance transfer could save you more money than a low rate on new purchases. You can quickly see several cards’ rates and features offered by balance transfer cards compared to low rate cards using the Smart Search tool.
Banks often lure new customers with a low introductory rate, or even a 0% rate, during a period from 6 to 24 months, after which the card will go to a rate closer to the national average. The introductory low rates often apply to both new spending and balance transfers. Again, if you plan to carry a balance, the post-introductory rate should be scrutinised before applying for the card.
People who don’t pay off their balance in full every month and want the security of a low rate in the future. If you have a large credit card balance already, you can better benefit from the typically lower balance transfer rates on a balance transfer credit card.
The interest rate that banks use to advertise their credit cards is generally the purchase rate – the interest that is applied to the part of your balance that is for normal purchases and payments. The average interest rate is about 17-18% p.a. Other transactions, such as cash advances and balance transfers, are set at a different rate.
The rate is shown as an annual percentage rate (APR), which is the amount of interest the balance would theoretically attract over the course of a year. The interest is actually calculated on a daily basis with a daily percentage rate, and applied once a month on your credit card statement. You can calculate the daily percentage rate as APR% / 365.
The interest rate starts to come into effect when you have an ongoing balance on your account after the interest-free days have ended.
A different rate, usually higher, is applied to cash advances, including ATM withdrawals, buying foreign currency, gambling payments and transferring funds from your credit card to a different bank account.
Many banks offer new customers a special interest rate as an introductory offer. This can include a low purchase rate or balance transfer rate, or a combination of the two. These promotions last for a fixed period, usually several months, and when the offer ends the interest reverts to a higher rate, typically the purchase rate or cash advance rate. When you are comparing and selecting a low rate credit card it is important to decide whether you want to take advantage of an introductory offer, or would prefer an ongoing low interest rate.
We have created some other comparison tables for these types of low interest cards:
Initially, the bank may offer a very low interest rate or even 0% for an introductory period on spending. This period will usually last from 3 to 12 months, depending on the bank. After that point, the interest rate will revert to the higher ongoing interest rate. Make sure you understand how long your low interest rate will last and just how high it will go after that point. You should also be aware of any potential late fees or fees for spending more than your credit limit, both of which can add up very quickly and negatively affect your credit rating.
Yes, there are a few low rate cards (but only a few) that give you some rewards such as a free bottle of wine or travel insurance. There are even fewer low rate credit cards that let you can earn points while you spend and redeem them for rewards. It’s really a trade off between rewards vs cost. Would you rather have a no-frill low cost credit card or have a card with higher interest rates with rewards and points?
Because the ongoing interest rate is low, you can expect to pay an annual fee. The annual fee is a mechanism that the banks use to offset the low rate and make some money. But having said that, you can still find credit cards with low ongoing interest rates and no annual fees for life, or at least for the first year.
Yes, if a low rate credit card has 0% p.a. on purchases for a promotional period of say 10 months you’ll still need to pay the minimum monthly repayment. Typically this will be about 2-3% of what you owe. On a spend of $5,000 your minimum repayment would be $100. You can calculate what you’ll be paying using our minimum repayments calculator.
Yes. The comparison tables are your first place to look for the best credit cards. You can adjust the sliders above the comparison table to calculate how much you’ll save on each low rate credit card. If you’re still unsure about which card to go for then you should use the Smart Search tool – it’s able to filter all the credit cards on this comparison site down to the cards that best match your interests and the details of your basic financial profile (age, location, minimum income). The Smart Search tool is designed to save you time and make it easier to eliminate the unsuitable cards.