Low Interest Rate Credit Cards

Low interest rate credit cards can help you save money on finance charges over the long run, especially if you tend to carry a balance from month to month. They can also reduce the interest you’ll pay on large purchase and can help you pay down your debt quicker.

Low interest rate cards offer different types of benefits depending on the card, such as: 1) 0% interest for a certain number of months, 2) interest rates below the market average and 3) balance transfer options. Some cards even offer a combination of benefits. Before you decide which type of card to apply for, you need to consider a few things.

How to choose a low interest rate credit card

What will you be using the card for?

If you’re planning on upgrading your computer or buying new furniture, a 0% introductory rate can be a good deal. If you tend to carry a balance, then a low on-going interest rate would probably be best. If you’re looking to reduce your high interest credit card debt, then a balance transfer card may be the way to go. Below are some things to consider for each type of card.

  • 0% Introductory rate cards - If you’re considering making a large purchase in the near future, a credit card offering a 0% introductory rate may be the way to go. Most introductory rates offer a 0% APR from 12 months to 18 months, but there are cards that offer longer introductory periods. If you pay your balance off during the introductory period, you won’t owe any interest. If there is a remaining balance after the introductory period, you’ll then begin to accrue interest.

  • Ongoing Low APR cards - These cards are great for people who occasionally carry a balance. Some people also use these types of cards for emergencies or to help pay expenses when they have irregular income. They can also be handy for people who need to pay for a large purchase over time. If you do tend to carry a balance each month, you need to have a plan for paying off your debt so it doesn’t spiral out of control. And choose a card with the lowest interest rate based on your credit standing.

  • Balance Transfer Cards - Exploring balance transfer cards makes sense if you want to reduce the cost of your high interest credit card debt. Since interest isn’t being charged during the introductory period, all of your monthly payments will go towards the outstanding balance. Once the promotional period is over, interest will begin to accrue on your remaining balance.

    It’s important to remember that most cards charge a balance transfer fee ranging from 3-5% of the total balance. You’ll need to factor in the transfer fee to determine how much you can save in the long run. You’ll also want to choose one with the longest introductory period available. To find out how much you can save with this type of card, use this balance transfer calculator from Wallet Hub.

What to consider before applying

Before applying for any credit card, it’s a good idea to read through the terms and conditions for that card. Take into consideration the card’s 0% introductory term and its regular interest rate. Also see if the card charges an annual fee, the conditions on balance transfers, and the credit limit you qualify for.

Your credit score

You need to have a general idea of what your credit score is before applying for a credit card. Low interest rate credit cards typically require to a good to excellent credit score (a FICO score of 670 or higher) for a person to be approved.

Interest rate

Most credit card interest rates are based on the prime rate, which varies over time. When reviewing credit card offers, you’ll notice a range of interest rates. What you will actually be charged will depend on your creditworthiness and the current interest rates. Having an excellent credit score will likely mean the interest rate will be at the lower end of the range.

Credit unions and some professional associations offer credit cards with lower interest rates than the major card issuers. But, you’ll need to meet their membership requirements to qualify. No matter who issues the card, find out what the penalty interest rate is if you fail to make timely payments. Penalty APR’s are usually around 29.99%

Introductory Rate

You can avoid interest entirely by using the right 0% APR credit card. It’s wise to look for a card that offers the longest introductory period (the industry average is 10 months). After the intro period is up, most credit cards switch to a variable rate. So pay attention to what the regular interest rate is on the card as well as how long the introductory rate extends. If circumstances prevent you from paying off your balance before the introductory rate expires, you don’t want to be paying a high interest rate on your remaining balance.

Balance transfer terms

With balance transfers, you’ll have a set period of time to pay off your balance without paying interest. So find out how long the promotional period is for each card you are considering and how soon you’ll need to make the transfer.

You’ll also need to consider what the balance transfer fees are. In some instances, it can be 3-5% of the transferred balance. Some companies have a minimum balance transfer fee of $5 to $10 if the transferred amount doesn’t meet the minimum.

You’ll also want to find out how new purchases are handled. If the card you are considering doesn’t include new purchases in the promotional period, any amount above the minimum payment will go towards paying the new purchase instead of the transferred balance.

One other thing to watch for when reviewing different credit cards is whether they charge deferred interest or not. Basically, the issuer calculates the amount of interest that would have accrued each month on the balance during the promotional period. Then, if the balance isn’t paid off by the end of the deferred interest period, the issuer charges you for all that accrued interest. This is becoming less common, but it pays to know in advance.

Annual Fees

Some (but not all) low interest rate credit cards have an annual fee. The important thing to look at is whether the amount of the annual fee will offset how much you save on interest.

Fees and penalties

Charging interest isn’t the only way credit card issuers make money. They also bring in revenue through fees for balance transfers and cash advances. They also charge late fees when your payment is overdue and over-the-limit fees when you’ve overextended your credit limit. It pays to look for a credit card with reasonable fees so you don’t get dinged in the long run.

Other benefits

Some low interest rate credit cards come with rewards programs, such as cash back or travel rewards. But the rewards sometimes come with a higher interest rate. If you’re comparing cards with very similar interest rates and terms, the rewards program may be the tie-breaker. Other benefits some cards provide include an overview of your credit score on your monthly statement, the ability to set your due date, leniency for missed payments, and the ability to freeze your credit line if you’ve lost your card.

Decide which low interest credit card is right for you

When searching for low interest rate credit cards, you not only want to compare interest rates, but also the fees and terms. Generally, a fixed interest rate is preferable to a variable rate. And a card with a fixed interest rate with no annual fee is even better.

When comparing credit cards, pay attention to how long the grace period is, and what the late fees and over the limit charges are. Also, make sure that the credit limit is high enough for you, and that the card will be accepted everywhere you plan to use it.

How do you tell if a card is right for you? It’s right for you if the interest rate is lower and the terms are better than the ones offered by other cards. 

If you're still undecided about which type of credit card is best for you, the following sections can help you narrow down your choice:

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