A Low Interest Credit Card is a card that offers an annual percentage rate (APR) that is lower than the average rate.
Yes, the interest charges can be avoided altogether by paying off your credit card balance by your due date every month. This is one way, but if you are more likely to carry a balance from month to month, a low-interest credit card could be a good option to reduce your interest charges, making it easier to pay off your credit card.
Follow the article to keep knowing more.
What is Low Interest Credit Card?
Interest charged on credit cards is by the companies for the privilege of borrowing money. In other words, it is called the annual percentage rate (APR). Credit cards vary in terms of APR. There is a particular benchmark set known as the prime rate for the comparison of the cards. For example, if the prime rate is 4% and your credit card charges a 12% prime rate, your APR will be 16%. As of June 2023, the average annual interest rate of credit cards is 24.7%.
Most companies charge interest rates if you do not make full payments of the bill every month. The interest rate is charged on your unpaid balance and the charges are added to your balance. So, non-payment of the bills in full for months could lead to an increase in credit card balances which might go out of hand in the future.
Some companies might also charge multiple interest rates just to complicate matters. The rates can be charged on purchases and on cash advances which are usually higher.
How Credit Card Interest Works
The balance on your credit card is multiplied each day at a daily interest rate. This interest rate is further added to your balance. The daily rate is calculated by annual interest rate which is the APR divided by 365.
So, if APR of your credit card is 16%, the daily rate would be 0.044%. If you had a balance of $500 on the first day, you would be levied $0.22 interest that day. for s total of $500 on day 2. This process is followed for the whole month.
If your balance is $500 at the beginning of the month and you don’t add any other fees, your ending balance will be $506.60 (including interest).
How does a Low Interest Credit Card work?
Federal Reserve data report of August 2023 provides detailed information about the low-interest credit card. It stated that the average credit card rate is 22.77% and any credit card that offers a lower APR could be considered a low-interest credit card. Some credit cards have standard APRs several points lower than this average, while some even go so far as to offer a 0% introductory APR ( annual percentage rate) on new purchases, balance transfers or both for approximately 21 months.
You will need decent credit to qualify for a low-interest credit card. The purpose of these cards is the same as any other credit card but it enables you to pay less interest rate if you have a balance already.
To avoid interest charges you must pay your entire balance on time every month if possible. But if you need to carry a balance, you’ll have peace of mind knowing you’ll pay less with a low-interest credit card.
Why choose a Low Interest Credit Card?
The APRs charged on a credit card have been slowly increasing since the rise in interest rates in 2021. usually, standard credit card APRs charge around 25% and higher when compared to the typical 18% or 19% before there was an increase in the costs. However, this may vary.
It’s possible to avoid paying this interest with a 0% purchase and/or balance transfer card. These interest-free periods can be temporary for promotional basis. Like any other company, they come back at charging high APRs at the end of the promised number of months.
Low-interest credit cards are a convenient option. When they charge interest, it is very low and does not change to a higher after a promotion.
Things to consider before applying for a low APR credit card
Your credit score plays a huge role in the approval of your application for the credit. If your credit score is poor, there are a few things you can do to improve it:
- Pay your bills on time.
- Correct all the errors on your report, if any.
- Check if you are registered on the electoral roll.
Steps for choosing a Low Interest Credit Card
Checking credit score
In order to discover the best low-interest credit card you need to initially check upon your credit scores. You can increase your chances of approval by making sure that the credit card you want is available to applicants based on your credit score.
Credit card websites and various applications indicate the credit score range you may require, which helps you avoid applying for cards you’re unlikely to qualify for. To ease the process, Experian allows you to quickly compare credit cards with lower APRs and then you can sort credit cards by your credit score.
Comparing the interest rates
This is one of the most important considerations to make when choosing a credit card. You will see a range of interest rates when exploring the rates and fees of a card that you are considering.
By nature, you will be looking for the lowest rate you qualify for, but that depends on various factors that include your credit score, income and others. However, until and unless you receive the credit card you won’t know what interest rate you’ll be getting.
While exploring the different ranges, closely review the different annual percentage ranges that credit cards offer. Different credit card companies often charge different APRs based on the type of transactions. Take an example, a card may have a particular APR for purchases, another APR for balance transfers and a third APR for cash advances. There may also be a penalty APR a higher interest rate that kicks in if you skip a payment.
Analyzing the fees
Interest rates are the center of concern when choosing a low-interest credit card. Your overall cost can be influenced by the card’s fees, do not miss out on comparing every card’s fee.
companies offering credit cards usually charge fees such as late payment, annual, cash advance, and foreign transactions. These all vary according to the issuer and the card type. In cases when you are transferring a balance to a new credit card a balance transfer fee is payable which is 3% to 5% of the transfer amount.
Comparing rewards
Cards with a lower APR are also offering rewards. Examples are miles, points, or cash back. When it comes down to choosing one between the two cards, both of them offering a low-interest rate, you must go ahead with the card with the most valuable rewards to maximize the credit card benefits.
Selecting the Low Interest Credit Card That’s Best for You
You can further apply once you have decided on the best credit card for you. The application will require you to provide some basic information about your income, identity, debt and the card issuer right also review your credit.
Once the application is approved, you have to wait 7 to 10 business days to receive your credit card in the mail. You can always contact the credit card issuer for an explanation in case your application is denied. You can also, take steps to improve your approval odds when you apply again.
How a Low Interest Rate Helps You Save Money
A low-interest credit card can cut your interest charges as compared to a credit card with an average rate. When you make a minimum $40 payment with a regular credit card, it will take you over 14 years to pay off. You will still have to pay over $5096 in total interest, this is more than double the original $2000 balance.
On the other hand, with the same $40 monthly payment, you could eliminate the balance on the Low Interest Credit Card a lot sooner. You would also pay $913 in interest, 82% less than that paid with a regular credit card.
Pros and Cons of credit cards
Pros
- Benefits like 0% interest rates and rewards are offered.
- Accounts on good terms might get an increase in credit limit.
- In regular transfers, interest is paid only when money is used.
Cons
- High interest is charged on personal loans.
- In cases of non-payment of the bills, the addition of interest and fees can lead to a debt cycle.
Conclusion
To get a credit card at a low-interesr ratw, you will need a good credit score. Before applying, go through your credit report and fee credit score on Experiam to i=undertand your credit health and fix any issues that may become a hurdle in your application for a low-interest credit card by affecting your credit score. Even a minute mistake can influence your chances of approval.
You can also read: https://www.mastercard.us/categories/low-interest/
Frequently Asked Questions
What is a good interest rate on a credit card?
APR (annual percentage) is the interest rate charged on a credit card. The APR varies from card to card. Some credit cards charge the same APRs to all the customers while some have ranges like 16.99% to 26.99%. You have to see where you fall in the range.
How can I lower my credit card interest rate?
The whole thing would be irrelevant if you did not carry a balance every month. Otherwise, you will be charged with interest. However, if you have to carry a balance, you can try requesting a lower interest rate from your issuer, opt for alternative credit card options that feature low ongoing interest rates or work on building your credit score.
How can I avoid paying interest on my credit card?
The best way is by paying your credit card bill fully every month. Factors like financial hardship make it necessary to carry a balance. In such cases, there are credit cards offered by regional banks and credit unions offering lower rates and making debt less costly.
What is considered a Low Interest Credit Card
For this list, U.S. considers cards with an ongoing minimum APR of 17.99% or lower and a 0% APR offer of 14 months or more for purchases or balance transfers.
Will your credit card pay interest if you pay the minimum amount?
Yes, interest will be charged on your credit card even if you pay the minimum balance. If you use the card to make the minimum payment each month, you will not be charged any fees, but interest will be charged on the unpaid balance.
