Understanding Low Interest Credit Cards

A low interest credit card offers an annual percentage rate (APR) that is lower than the average rate. According to Federal Reserve data from August 2023, the average credit card rate is 22.77%. Any credit card offering a lower APR could be considered a low interest credit card. Some cards even offer a 0% introductory APR on new purchases, balance transfers, or both for up to 21 months.

To qualify for a low interest credit card, you’ll generally need good to excellent credit. These cards work just like other credit cards but enable you to pay less in interest charges if you carry a balance. Establishing a habit of paying your entire balance on time each month can help you avoid interest charges altogether. However, if you must carry a balance, a low interest credit card can significantly reduce your interest payments.

How to Choose a Low Interest Credit Card

When you’re ready to get a low interest credit card, follow these steps to improve your odds of approval and ensure you apply for the card that best suits your needs:

1. Check Your Credit Score

Start by checking your credit scores. This will help you identify which credit cards you are likely to qualify for. Many credit card websites and applications indicate the credit score range they require, helping you avoid applying for cards you’re unlikely to qualify for.

2. Compare Interest Rates

The APR you’ll pay is a crucial consideration. Review the rates and fees of the cards you’re considering. Pay close attention to the different APRs they offer, as credit card companies often charge different APRs for different types of transactions, such as purchases, balance transfers, and cash advances.

3. Review the Fees

Don’t forget to compare each card’s fees, which can add to your overall cost. Common fees include annual fees, cash advance fees, late payment fees, and foreign transaction fees. If you’re planning on transferring a balance to the new credit card, you’ll likely have to pay a balance transfer fee, typically 3% to 5% of the transfer amount.

4. Compare Rewards

Many low APR cards also offer rewards, such as miles, points, or cash back. If your comparison comes down to two cards with similar interest rates, choose the card with the most valuable rewards to maximize your benefits.

5. Select the Best Card for You

Once you’ve decided on the best credit card for your situation, submit your application. You’ll need to provide some basic information about your identity, income, and debts. If approved, you may have to wait seven to 10 business days to receive your credit card in the mail. If your application is denied, call the credit card issuer for an explanation and take steps to improve your approval odds when you apply again.

How a Low Interest Rate Can Help You Save Money

Consider this comparison to understand how a low interest credit card can reduce interest charges and shorten your timetable to pay off your debt:

As this comparison shows, a low interest credit card can drastically cut your interest charges compared to a regular credit card. With the same $40 monthly payment, you could eliminate the balance on the low interest credit card eight years and seven months sooner, paying $913 in interest compared to $5,096 with the regular credit card.

The Bottom Line

While it’s best to avoid interest charges altogether by paying your credit card balance off each month, a low interest credit card can lower your interest charges if you must carry a balance. If you’re trying to get out of debt, it’s essential not to rack up more charges on your card. Consider transferring your balance to an intro 0% APR credit card, which may give you enough time to zero out your balance without paying interest at all.

You’ll likely need good credit to qualify for a low interest credit card, ideally one with a 0% intro APR offer. Before you apply, check your credit report and credit scores to see where your credit stands and address any issues that could harm your score. Even a modest improvement in your credit score could potentially boost your chances of approval and with more favorable terms.

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