When you use a credit card, you essentially borrow money from the credit card issuer to make a purchase, and pay it back later. In exchange for letting you borrow their money, credit card companies charge you interest and fees.
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Credit cards tend to have higher interest rates than other kinds of loans, like car or student loans. For example, while your student loan might charge around a 5% interest rate, some credit cards charge 25% or more. If you are unable to pay off your card in full each month, you may be interested in low interest credit cards.
If you pay your credit card bill in full and on time every billing cycle, the interest rate isn’t as important in choosing a card as other factors would be â€” like reward bonuses and other perks. But if you intend to carry a balance or take out balance transfers and cash advances, a rewards cards might encourage you to overspend in order to rack up points â€” giving your debt the potential to grow beyond what you can comfortably repay.
If you know you’ll carry a balance from one billing cycle to the next, it’s essential to find a low interest credit card. If you don’t, you can end up paying much more over time.
Finding the Best Low Interest Rate Credit Cards
There are two main kinds of low interest credit cards: cards with low or 0% introductory rates, and cards that have a standard low interest rate.
If you’re making a large purchase that you intend to pay off in the next few months, a card with a 0% introductory APR could help you avoid paying interest on purchases entirely. Just make sure you know when that 0% introductory APR expires and pay the debt off in full before the APR increases.
You may want to transfer a balance from another (higher interest rate) card to a card with a 0% introductory rate on balance transfers to save on interest as well â€” just check to see what fees you might be charged to make the transfer. Often you’ll be charged a 3% “balance transfer fee,” but some cards offer promotions and will waive this fee.
If you know you’ll carry a balance for a year or more, look for a card with an APR that is not tied to a promotional period. One place is look is your local credit union, as credit cards offered to you as a credit union member tend to have lower interest rates. As with any credit relationship, there are both pros and cons to credit union credit cards.
How to Qualify for a Low Interest Rate Credit Cards
Your application for a low interest rate card is more likely to be accepted when you have good to excellent credit. If you have routinely carried credit card debt or maxed out credit cards in the past, you may not qualify for the lowest available interest rate on a new card.
Why is this the case? It’s because the credit card company takes on risk when they agree to lend you money. The more responsible you’ve been in the past with repaying credit, the less risky you seem in their eyes. Your reward for responsible credit usage is being qualified for a greater variety of credit cards. Picking the right card for your needs, and using it carefully and responsibly, will open up your options when it comes to the kinds of cards you can get in the future.
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