How Do Low Interest Rate Credit Cards Work?
Low Interest Rate Best Buys
Low Interest Rate FAQ's
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Low interest rate credit cards do what they say on the tin, they offer a low rate of interest for when you don't manage to clear your credit card balance in full at the end of the month.
Low interest rate credit cards can save you money in interest charges when you leave an outstanding balance on your credit card from month to month - you can compare low interest rate credit cards here.
What does a low interest rate credit card offer?
When you use a credit card, the purchases you make are on 'credit' - which means that you are effectively borrowing the money to pay for the item you bought.
This 'borrowed money' can then either be repaid in full when you receive the statement of how much you owe - or, you can choose to just repay a small amount and borrow the money you spent for a little longer.
Choosing to borrow the money for longer - keeping the purchases on 'credit' - as an outstanding balance on your credit card account will incur interest charges.
The amount of interest you are charged for keeping purchases on your credit card account from month to month varies dramatically from card to card.
Low interest rate credit cards offer the lowest - or cheapest - rates for this purpose.
What transactions does the low interest rate apply to?
The low interest rate offered on low interest rate credit cards applies to purchase transactions - that is goods or services bought from retailers or companies.
Some low interest rate credit cards may also offer a low interest rate on cash withdrawals too - with, or without a handling fee.
Cash withdrawals cover ATM withdrawals, getting 'cash back', buying foreign currency or traveller's cheques and gambling transactions.
Are there any other interest rates or fees I should watch out for?
- Cash withdrawals
If you intend to use a low interest rate credit card for cash withdrawals as well as purchases, remember to look and see if the card also offers a low rate on cash transactions.
Credit cards often charge 'handling fees' for cash withdrawals as well as interest on the amount - and this is something to look out for if you know you use a credit card for getting cash.
- Use abroad
Using a credit card abroad - even a low interest rate credit card - can incur hidden costs. Most credit cards charge a 'foreign transaction fee' whenever you use a credit card abroad, usually around 2.75% of the transaction amount.
There are credit cards available, for example the Post Office credit cards and the Goldfish i24 Card, which do not charge this foreign transaction fee.
Will the low interest rate remain low?
In short, yes. Low interest rate credit cards are not 'introductory rate' credit cards - so the interest rate offered is not subject to ending promotional periods.
However, credit card interest rates tend to be variable rates - which means that if the Bank of England's base rate goes up, banks and building societies generally increase their interest rates in-line with the change, and low interest rate credit cards can be affected.
Credit card companies can sometimes change a product they are offering. A low interest rate credit card you take out now could end up having its rates raised a few years down the line - at which point you can always switch to a more competitive credit card offer.
These above mentioned changes are impossible to predict, and low interest rate credit cards do offer a low rate of interest for an indefinite period.
What should I look for when choosing a low interest rate credit card?
When comparing low interest rate credit cards these are the main points you should keep in mind:
- Look for the lowest APR. The APR (annual percentage rate) is the rate of the total charge for credit expressed as the law requires, enabling you to compare the rates of low interest rate credit cards. The total charge for credit includes interest charges, any annual fee payable.
- Are there any loyalty offers? Some banks and building societies offer even lower interest rates on their credit card if you also hold a current account with them.
- What is the interest rate for cash withdrawals? Withdrawing cash on a credit card from an ATM machine often has a higher interest rate.
- Tip: We recommend using a debit card for withdrawing cash, as credit cards charge a higher rate of interest, a handling fee and no interest free period (you will be charged interest from the day you withdraw the cash).
- Is there an annual fee, and if so, how much is it? Some credit cards charge a yearly fee for carrying the card.
- Does the credit card offer any introductory rates? Introductory rates give you the chance to transfer an existing credit card balance to a 0% or low interest rate or make purchases without being charged any interest, or very low interest, for an introductory period.
- How long is the interest free period? This will be the amount of time you have between statements where if you pay off your balance in full each month you will not be charged any interest on purchases.
- Tip: To benefit from the interest free period on purchases, you must pay off your balance in full by the requested date and of also paid off the previous statement's balance in full and on time.
- Does the credit card offer any additional rewards? Cash back rewards are a nice way to get a little money back from your credit card issuer every time you use the card to make a purchase.
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