What Is a Low Interest Credit Card?

What Is a Low Interest Credit Card? article image.

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The word "low" is rarely associated with anything good—think lowlife, low standards, lowest common denominator. But when you're comparing interest rates on credit cards, "low interest" is exactly what you want to see.

A low interest credit card is one with an annual percentage rate (APR) lower than the average. That means users who carry a balance accrue lower finance charges than they would with a higher interest credit card.

How Low Interest Rate Credit Cards Work

As of January 2020, the average variable credit card interest rate is about 17%. A low interest credit card has a rate that's lower than this average—often by several points. Some low rate credit cards go one better by offering a 0% introductory APR on new purchases, balance transfers or both for a limited time.

To qualify for a low interest credit card, you'll generally need good to excellent credit. If you can get one, it will work just like any other credit card—except that you'll pay less in interest charges if you carry a balance. While it's best to pay off your balance every month to save money and boost your credit scores, when you do have to carry a balance, it's reassuring to know you'll pay less with a low interest card.

How to Choose a Low Interest Credit Card

To find the best low interest credit card for you, start by checking your credit score. Once you know your score, you'll have a better idea of which low interest credit cards you can qualify for. Credit card websites and applications typically indicate the credit score range they require, which helps you avoid applying for cards you aren't likely to get.

Most credit cards today have variable interest rates, meaning the rate may fluctuate based on factors determined by the issuer. When you review the rates and fees of a card you're considering, you'll typically see a range of interest rates. The interest rate you'll qualify for will depend on your credit score, so you won't know exactly what interest rate you'll get until you're approved for the card.

That's not the only way interest rates can vary. Credit cards may also charge different APRs for different types of transactions. For example, a card may have one APR for purchases, another for balance transfers and a third for cash advances. There may also be a penalty APR—a higher interest rate that kicks in if you miss a payment.

In addition to comparing interest rates on the cards that you're considering, also find out what fees they charge. These may include an annual fee, a cash advance fee, a foreign transaction fee and a late payment fee. If you're planning to make a balance transfer to the new card, calculate the fee for doing so (usually you'll pay 3% to 5% of the balance being transferred).

If a card offers a 0% introductory financing period, confirm how long that period lasts, what types of transactions qualify for the introductory rate, and what your interest rate will be after the introductory period is over.

Finally, compare any rewards the credit cards offer. It's more common than it once was to find low interest credit cards that also offer rewards, so if you want to earn cash back or miles for using your card, you'll have several options to choose from.

Find the best low APR credit cards in Experian CreditMatch.

How a Low Interest Rate Can Help You Save Money

A low interest credit card can save you money in several ways. If you tend to carry a balance on your credit cards, a lower interest rate will reduce the amount of interest you accrue, which can mean a substantial savings over time. You might be surprised at what a difference a few percentage points can make.

Here's an example. Suppose you have a credit card with an APR of 17.35%, a balance of $2,000 and a $35 minimum monthly payment. If you paid only the minimum payment each month, it would take more than 10 years to pay off the balance—during which time you would accrue a whopping $2,266 in interest. That's more than the original balance! If your credit card's variable APR rose during those 10 years, you'd pay even more.

Compare what happens if you have a $2,000 balance on a card with a 13.49% variable APR. If you make the same $35 minimum payment each month, you would pay off the balance in seven years and eight months and accrue $1,219 in interest. A difference of 3.1 points in your interest rate can help you pay down your balance faster—and save you $1,047.

If you have a balance on a credit card with a high interest rate, making a balance transfer to a low interest credit card can help reduce the amount of interest you accrue going forward. Some credit cards also offer 0% APR on balance transfers for a limited period. While you'll have to pay a balance transfer fee for this, the tradeoff in savings can be well worth it. If you find a card offering 0% on balance transfers for 24 months, you've bought yourself two years to pay off your balance without adding any interest to your debt.

A credit card that offers a 0% introductory APR on new purchases can also mean savings. You can find cards with such introductory offers of anywhere from six to 24 months. You'll still have to make at least the monthly minimum payment during the introductory period, and once that period expires, interest will begin to accrue on your balance. However, 0% financing gives you the luxury to make big purchases, such as furniture or major appliances, and pay them off over time without accruing interest.

Qualifying for Low Interest Credit Cards

Whether you need to carry a balance on your credit card, have a big purchase in mind or want to transfer a balance from a high interest card, the right low interest credit card can help to achieve your financial goals. To find the right low interest credit card for you, check your credit score. Then check out Experian's CreditMatch™, a free service that sorts through your credit card options to find the cards that match your credit profile.