We all want the best credit deal we can get and usually this means paying the lowest interest rates possible when we select a credit card. But how do you compare and choose a low rate credit card that is right for you and how do you make the most of it?
Understanding interest rates
Whenever you see an advertisement for a credit card, you will always see a percentage next to it. It may say something like 10%, 16.9%, 18% or even higher. This is the Annual Percentage Rate (APR) and tells you how much interest you will be expected to repay on the amount borrowed annually. If you carry an average monthly debt of around $50. With an APR of 11% you will be paying back an extra $5.50 on your initial loan over the course of a year. The benefit of a low interest rate is that you will pay back less. With an interest rate of 8% you would only pay back $4 on the same loan. There are usually two types of credit card loans: fixed-rate and variable. The first refers to a fixed interest rate which shouldn’t fluctuate during the course of the loan although, with 15 days advanced notice banks are entitled to change the rate. A variable (or standard variable) interest rate may fluctuate in line with the Federal Reserve’s rates, resulting in higher or, rarely, lower rates than originally advertised.
What is a good low interest rate?
All cards and offers are different so it is worth shopping around and comparing interest rate deals. Generally it is a good idea to go for a fixed low rate credit card. You can compare rates by searching for ‘low interest credit cards’ online or you may find that you get deals regularly through the mail. It is worth comparing any offers that land on your doormat thoroughly. Low interest rates can be as competitive as 6.5% (Pulaski Bank), sometimes even lower, but whether or not you are eligible for that rate often depends on your credit rating. You may find that you apply for this rate but, due to a poor credit rating, you end up being offered a higher interest rate. So if you are looking for a steady low interest credit card it is worth getting your credit rating into shape first. It is also worth reading the fine print on the credit card contract as there may be additional fees that will push up the rate of APR. For example Pulaski Bank offer a low rate of 6.5% APR but also charges a $35 annual fee. The actual APR on a credit card offer may be higher than you might at first think. The low rate may only be an introductory offer. Beware of very low interest rate cards such as 4.9% and make sure that this isn’t about to rise to 16% after six months. In addition, if you have a very high credit score than you should expect to not only pay the lowest interest rates but also to receive a credit card with excellent rewards programs such as free air miles, or cash back on purchases.
Comparing 0% Interest rates, the lowest you can go
The smart borrower doesn’t pay interest at all. Almost all credit card companies now offer 0% introductory rates on credit cards, usually for between six to twelve months. 0% interest is of course the lowest interest rate you can ever pay on a credit card and it is perfectly possible to manage your debt so that it is always covered on an introductory offer and therefore never accrues interest. It is a very effective way to pay off debt without building up more debt. The disadvantages to the game are that you always have to stay on top of the deadline for the introductory offer and apply for a new credit card in time, before the real APR comes into effect. If you forget about it, you may find you’re suddenly charged a whopping 18.9% APR. Also, a person who sticks with a low interest rate credit card as opposed to changing between 0% offers may increase their credit score in the long term. Banks approve of customers who make them money and although no one wants to willingly give the bank money, doing so can lead to a better rating which, in turn, leads to lower interest rates and better credit deals.