Get the Lowdown on Low Interest Credit Cards

If you are a first time credit card user, it is a very smart idea to start with a low interest rate credit card. You can spend a lot less money over time paying for your purchases if you start out with one of these cards. They are generally considered to be one of the best types of credit card for most people exactly because of the low rate of interest charged on purchases.

Other Types of Low Rate Card Offers

• 0% on purchases credit cards – pay nothing on purchases for up to 55 days.
• Cheap credit cards – find a cheaper deal with lower interest rates on purchases, balance transfers and annual fees

A Low Interest Rate Credit Card FAQ

Q: Who should apply for a low rate credit card? A: Plain and simple, a low rate credit card is ideal for anyone who is looking to save money. You can see what the average interest rate is at the bottom of every category page on our website. People who maybe don’t pay off their balance in full every month or just want the security of knowing that they have a low rate will be best suited. If you have a bit of a credit card balance backed up, you will benefit from the really low balance transfer rates on a balance transfer credit card.

Q: What does the low rate refer to? A: 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. Other transactions, such as cash advances and balance transfers attract 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. For this reason, if you are the type of cardholder who usually has an unpaid debt on your account, a low rate could be a very good choice.

Q: What are the different types of interest that are charged? A: There are several different types, which have been outlined below.

Purchase rate: This is the interest that is charged on normal purchases and payments such as buying groceries, fuel and other shopping, paying in restaurants, online payments and buying things over the telephone. Direct debits for bill payments also fall into this category. A ‘low rate credit card’ is one with a low purchase rate. It is this rate that banks use to advertise their credit cards and one of the most useful ways to compare different deals, since these payments should account for most of your credit card use.

Cash advance rate: 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.

Introductory interest rates: Many banks offer new credit 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.

Q: How do I know that an interest rate is low? A: We show the average rates based on all the card offers currently on our website. This is a live number that updates as rates change. You can use those data to quickly find out how a card’s interest rate compares against the broader market.

Q: What features should I look out for most? A: Initially, the bank may offer a very low interest rate or even 0% for an introductory period. This period will usually last from three to twelve months, depending on the bank. After that point, the interest rate will revert to the higher ongoing interest rate. Make sure you look at the details of the offers and read the fine print on the application to see 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.

Q: Do low rate cards have an annual fee? A: 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 on offer 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.

Q: What features should I compare? A: You should examine all the features of low rate credit cards to make sure you are choosing the very best deal to suit you.

Introductory interest rates: When comparing low rate credit cards you will notice that many offer a very low, or 0% purchase rate for an introductory period. Before applying for a credit card with this type of special offer make sure you check how the rates change at the end of the promotion. Does it revert to the purchase or cash advance rate?

Ongoing interest rate: The interest applied to purchases is one of the most important features to compare. Find the lowest rate that also balances with the other features for the best deal and lowest cost credit card.

Annual fees: Many low rate cards feature an annual fee. The fee shouldn’t be so high as to negate the savings you can make on the low interest rate.

Rewards programs: You can also find many low rate credit cards that provide access to loyalty schemes, meaning you can earn points while you spend and redeem them for rewards. If you are applying for a low rate credit card with a rewards scheme make sure it provides the opportunity to earn points in the way you like to spend, and offers rewards you would like to use, e.g. points that can be redeemed towards flights, shopping discounts or cash back.

Other fees and charges: Always study the small print of the terms and conditions to discover what additional rates, fees and charges may apply to a credit card before applying. Although the credit card may be advertised as low rate, you should be wary that different rates of interest apply to different types of transaction.