Best Low Interest Credit Cards
- Two Types of Low-Interest Credit Cards
- Who Should Get a Low Rate Credit Card?
- Comparing Low-Interest Credit Cards
- Pros of a Low-Interest Credit Card
- Cons of a Low-Interest Credit Card
- Strategies to Save With a Low-Interest Rate Credit Card
A credit card comes in handy when you don’t want to use cash, when you’re looking to build a credit history and when you want to earn rewards on purchases. Credit cards are issued by banks, which are in business to make money. This is precisely why interest rates are tied to credit cards. The more you use a credit card, the more interest a bank earns. But while this setup benefits financial institutions, it doesn’t benefit your wallet. So it only makes sense to choose a low-interest credit card.
There are no hard or fast rules regarding the amount of interest a bank charges its customers. Some credit cards have rates as high as 20% or more, whereas other credit cards have much lower rates, around 10% to 13%. If you haven’t already, take a look at your credit card terms to see how much you’re currently paying. If your rate is on the higher end, consider switching to a lower rate card and saving money.
Two Types of Low-Interest Credit Cards
Many credit card companies offer low-interest credit cards. So if you’re not satisfied with your current rate, be proactive and search for a credit card charging less interest. Never assume that your current rate is the best you can do.
There are two options for a low-interest credit card. These include a balance transfer credit card with a 0% introductory rate, and a low APR non-balance transfer credit card.
A balance transfer makes sense if you have high-rate credit card debt and you’re looking to pay off the card sooner. Many balance transfer cards charge 0% interest for the first six to 18 months on purchases and balance transfers. On that account, moving your balance from a high-rate credit card to a low-rate credit card reduces your interest charges, which can save you hundreds.
Search for a balance transfer card with a long introductory rate period, which gives you more opportunity to pay off the balance before interest kicks in. Before applying for a new card, calculate how much you currently owe and determine how long it’ll take to pay off this balance. Next, look for cards with intro rates conducive to your payoff schedule.
Be cognizant of the fact that balance transfer credit cards also have balance transfer fees (about 3% of a transferred balance), so compare fees before choosing a card. Also, don’t forget that your interest rate will reset after the introductory rate, at which point the credit card company charges a regular APR. Make sure you research the credit card’s regular APR before applying. Look for cards that offer low ongoing APRs to avoid getting stuck with another high-rate credit card.
If you’re not interested in transferring a balance, there’s also the option of a non-balance transfer credit card with a low regular APR. These credit cards are hard to come by, but they do exist for people who have a lengthy credit history and a good credit score. Call credit card issuers directly to inquire about low-rate credit card options, as well as the requirements for getting approved for these cards.
Who Should Get a Low Rate Credit Card?
A low-rate credit card is favorable to anyone using a credit card. Seeing how interest is inescapable if you’re going to use a credit card it only makes sense to use one with a lower rate. But these cards aren’t the right fit for everyone.
Low-rate cards are designed with a specific consumer in mind. You might be an ideal candidate if the following conditions apply…
- You’re looking to pay off debt. You don’t need a 0% balance transfer credit card to pay off debt, but paying zero interest can definitely speed up the debt payoff process. Start shopping around and compare balance transfer offers. Speak with your personal bank to see if you’re eligible for any of its low-rate cards, and then compare your bank’s cards with those offered by other banks. Seek out cards with the longest introductory rate periods to defer paying interest for as long as possible. Also, shop for cards that don’t have a balance transfer fee to save money.
- You have an established credit history. These credit cards are attractive, but credit card issuers don’t typically extend low-rate offers to people with no credit or bad credit. A low-interest rate is a privilege reserved for people with the best credit profiles. But just because you can’t qualify for a low-interest credit card today doesn’t mean you can’t in the future. For now, get a secured credit card to build or rebuild your credit. And then going forward, pay your bills on time every month, keep your credit card debt to under 30% of your credit line and limit your number of credit inquiries. These steps can gradually improve your credit, helping you secure a better rate in the future.
- You carry a credit card balance. A low-interest credit card is also perfect if you carry a balance from month to month. You should always pay off credit card debt at the end of every month to avoid debt. If you can’t pay off your bill every month, attempt to pay off the debt every other month, and always make more than your minimum payment. The longer a balance sits on your credit card, the more interest you pay. Interest charges can end up costing you hundreds over the next few months or years.
Comparing Low-Interest Credit Cards
Also, just because a low-interest credit card saves money doesn’t mean that any and every low-rate card is right for you. These cards have other fees that need to be taken into consideration to maximize your savings.
- Foreign transaction fees
This fee covers the cost of converting currency while in a foreign country and it can be as high as 3% of the purchase price. If you frequently travel to another country, choose a low-rate credit card that doesn’t charge a foreign transaction fee.
- Annual fees
Low-interest credit cards may or may not charge an annual fee, so make sure you look for information about fees on the credit card application. These fees are common with credit cards that have a rewards program (where you earn points and miles toward merchandise, gift cards, travel, statement credit or cash). Annual fees help offset the cost of a rewards program.
As you shop for a low-interest credit card, consider whether you’re a match for a rewards card. Typically, you should get a rewards credit card if you use credit cards often and you pay off your balances in full every month. In this case, the rewards you earn might be enough to compensate for the annual fee. If you only use a credit card for emergencies, you probably don’t need a rewards card.
Annual fees vary depending on card benefits. Some credit cards have annual fees as low as $50, whereas a credit card with platinum benefits may have an annual fee up to $450. Only you can decide whether a card’s rewards justify its annual fee.
- Balance transfer fee
We’ve covered this already, but to reiterate: If you’re getting a balance transfer card to receive a 0% intro rate, find a card that doesn’t charge a balance transfer fee, or a credit card with a low transfer fee. Balance transfer fees can add up quickly. For example, transferring a $5,000 balance from one credit card to another could end up costing you $150, assuming a 3% balance transfer fee.
- Late Fees
In a perfect world, you would never submit a late fee. But life happens and you may forget or overlook a due date. Look for credit cards that have minimum late fees, or credit cards that waive your first late fee. To avoid late fees, put your credit card payments on autopilot. Choose a payment date and amount, and have payments automatically drafted from your bank account each month. Automated payments ensure a timely arrival helping you avoid late fees.
- Other considerations
Not only should you take fees into consideration when shopping for a low-interest credit card, you should also consider cardholder benefits. A low-interest credit card is appealing to consumers, but a low rate also means that credit card issuers aren’t getting a lot of money from customers. With that being said, expect fewer cardholder perks. Make sure you read the fine print of your credit card application for information on benefits, or call the credit card issuer and ask about card benefits. Some benefits might include traveler’s insurance, trip cancellation, price protection and more.
Pros of a Low-Interest Credit Card
- Zero percent introductory rates and low regular APR’s can save you hundreds—or even thousand—in interest charges over the years.
- Some low-interest credit cards have annual fees. However, because these credit cards typically have fewer cardholder perks, some credit card issuers don’t charge an annual fee, or only charge a small fee, reducing your costs.
Cons of a Low-Interest Credit Card
- These credit cards don’t charge much interest, so they aren’t the right fit for people with no credit or bad credit. The privilege of a low rate is only extended to people with a proven track record of paying their bills on time and managing credit responsibly. Before applying, order a copy of your credit report and credit score, and then take steps to fix poor credit if necessary. Dispute errors on your credit report and improve your payment history.
- Zero percent interest offers eventually expire, so make sure you understand the terms of your promotional rate. This includes the length of the promotional period, as well as the interest rate you can expect after the promotional period.
- The interest on a low-rate credit card with remain low—unless you default. If you become 60 or more days past due, your credit card issuer can impose a penalty APR and increase your rate. If you experience payment difficulty, contact your credit card company before defaulting to negotiate alternative payment arrangements.
- If you enjoy earning miles or points toward travel, gift cards or merchandise, some low-interest credit cards don’t offer these additional features. These credit cards are a better match for people seeking a no-frills card for occasional or emergency use.
Strategies to Save With a Low-Interest Rate Credit Card
Getting a low-interest credit card is a saving in itself, but there are additional ways to benefit from a low-rate card.
To maximize your savings, don’t get into a habit of carrying a balance from month to month. Carefully review your budget each month, and then determine how much to charge on your card for that month. When your statement arrives via email or postal mail, pay off the card’s balance in full. This approach can significantly reduce how much you owe in interest, and help you avoid debt.
If you must carry a balance, come up with a plan to pay off the debt within the next couple of months to avoid long-term interest charges.
Additionally, save money by getting a credit card with the fewest fees. So keep an open eye for cards that charge the lowest balance transfer fees, no annual fees and no foreign transaction fees.
Learn More about Low Rates &Fees Credit Cards
- Best Balance Transfer Credit Cards
- Best No Annual Fee Credit Cards
- Best Zero Interest Rate Credit card
- Best No Foreign Transaction Fee Credit Card
A low-interest rate credit card is a fantastic option if you want to save money on interest, whether permanently or as a promotion while paying off credit card debt.
Keep in mind that these cards are geared toward people who have excellent credit. So if you apply for no credit or bad credit, you may not get the card. Take the needed steps to boost your credit score, and contact banks to ask about their minimum credit score requirements for their low rate credit cards. Getting a low-rate card may not require an 800 credit score, but you’ll likely need a credit score in the mid-600s and higher.