Guide to low interest rate credit cards
- Credit cards with low interest rates can help with the management of long-term debt
- Remember that you're still paying to service debt, you should beware of annual fees and missed payments could result in higher interest rates
- You're likely to need a good credit rating to qualify, but you can carry out a soft search to see if you're likely to be accepted before you apply
- If you're paying off the balance in full each month, a reward or cashback card may be more appropriate
Low APR credit cards are generally defined as those with a smaller Annual Percentage Rate (APR) than other credit cards.
The APR is the total annual combination of the interest rate you'll be charged if you don't pay off your balance in full each month plus any other charges, for example an annual fee.
While the average credit card APR is around the 20% mark, on a low APR card it's more like 10% and in some cases it may be even lower.
Some low APR cards may offer other benefits such as reward points or introductory interest-free periods on balance transfers and purchases.
Others may offer commission-free purchases when you spend on them abroad.
If you compare credit cards through Gocompare.com you'll be presented with a table showing all available cards.
You'll then be able to narrow down your search, and amongst your options will be choosing to see just low APR credit cards.
Availability of low APR credit cards
Low APR cards can be pretty few and far between.
Need more information?
On 13 November, 2014, Gocompare.com analysed 249 credit cards listed on the matrix of independent financial researcher Defaqto and found that just 12 cards (5%) had a representative APR of 12% or less, with the lowest being 6.4%.
However, all 12 cards allowed you to transfer a balance from another card.
Two of the low APR cards also had 0% promotional interest periods of three and nine months on balance transfers, so they combined the features of both types of cards.
The pros of low APR credit cards
If you have some debt that you think you'll need a long time to pay off - longer than those offered by the top 0% balance transfer credit cards - then a low APR card could be handy.
Some cards may also offer an introductory period where you can transfer debt onto the card, for example, and pay an even lower interest rate.
Of the 12 low APR cards found on Defaqto, three had a lower introductory rate and two had a 0% introductory rate. The length of these introductory rates was between three and 12 months.
You should expect to be charged a fee for any balance transfer you make, which is likely to be a percentage of the amount you're transferring.
The cons of low APR credit cards
Remember that, while the rate on a low APR card may appear attractive, you'll still be paying interest on your debt unless you're paying off your balance in full each month.
Did you know...?
- Credit card companies only have to offer the advertised APR to 51% of applicants
If you take a card out, make sure you make at least the minimum repayment each month or not only will you pay charges and get a black mark on your credit report, but you may lose your low APR deal and be put on a higher interest rate.
If you're using a low APR card to repay debts, try to do this as quickly as you can so you don't continue to be hit by interest charges. If you're continually overspending, try to make a budget to see if you can make cutbacks, or read more about how to cut the cost of loans.
Will you qualify for the right low APR card?
You'll need a good credit rating to apply for a low APR card, which unfortunately means that such products are unlikely to be available to many of the people who would benefit most from having one.
What's more, making a failed application will have a negative impact on your credit history and will make it even less likely that you'll qualify for the top deals.
When looking for a low APR card, think about using a smart search tool - such as Gocompare.com's smart search - that allows you to make a soft search before proceeding with a formal application. Such a soft search will show you the cards you're likely to be accepted for without having an impact on your credit history.
Even if you have a good credit score you may not get the advertised APR as, by law, credit card companies only have to offer this to 51% of applicants. If you have a bad credit score or haven't got a credit rating at all, you may want to look into credit builder cards.