How low a rate makes a low rate credit card?
Low interest rate credit cards are offered with a substantially lower interest rate than comparable credit cards on the market. Credit card interest rates in Australia hover somewhere around 15% and 24% p.a., on average. By design, low rate credit cards beat those rates by a significant margin. Some low rate credit cards may offer standard variable rates as low as 10% p.a.
Others may offer comparable fixed rates. The bottom line is if you want to save money on interest repayments, a low rate credit card is a better choice. What you may sacrifice is rewards, frequent flyer points and other benefits such as offers on travel insurance, for example.
What types of low rate credit cards are out there?
Low rate credit cards come in four major forms – standard low rate cards, 0% introductory rate cards, low rate balance transfer cards and premium low rate credit cards. Banks offer low rate credit cards that use Visa or MasterCards.
Standard low rate credit cards offer variable purchase interest rates below 15% p.a. and a low annual fee. These cards do not offer much in the way of member rewards or frequent flyer programs. One common feature of low rate credit cards is the offer of no foreign transaction fees, handy for people who make overseas purchases online.
0% introductory rate credit cards give the cardholder a set period to make purchases without incurring interest. After the promotional period, the low rate will come into effect.
Low rate balance transfer cards have the added benefit of allowing you to transfer an existing credit card balance, usually at a promotional 0% interest rate for a limited time. Additional purchases incur the same low interest rate.
Premium low rate credit cards give cardholders a mix of premium services such as rewards or concierge services while charging a low interest rate on purchases. Be wary that these low rate credit cards may have higher than average annual fees to pay for these premium rewards.
Is a low rate credit card for me?
A low interest rate credit card suits people who tend to pay off their credit card in instalments rather than all at once. A low rate credit card will not incur as much interest over time than a comparable standard rate or premium rate card, which can save you money. If you are transferring a balance from a standard rate card to a low rate credit card, it may help you pay off that credit card debt faster. Some balance transfer cards may also offer an introductory 0% interest rate on the balance for a limited period. Many low rate credit cards also have low annual fees, which can save you even more money.
For example, a balance of $1,000 at 18%p.a. will incur $861 in interest, assuming you only pay the minimum ($21 per month.) That same balance at 12%p.a. reduces that interest to $393.
A low rate credit card may be the right choice for your circumstances, financial needs and personal shopping habits.
Do you have low rate credit card questions?
Low rate credit card helpful guides
How to maximise your 0% introductory rate
If you have transferred a balance to a new credit card or are simply starting a new card, you can take steps to maximise your 0% introductory rate. These may last anywhere from three months up to a year – some cards offer 18 months or beyond. Even so, during this time you should aim to pay off your existing balance in full before it expires. This might mean doubling or even tripling the minimum repayment so you can settle the account. Credit card companies hope you only pay the minimum, so they can accrue interest.
Premium & low rate. Goes well?
It does sound counter-intuitive, but you can also compare different premium low rate credit cards. Premium low rate credit cards combine a low interest rate on purchases with premium extras such as rewards points, frequent flyer points, complimentary travel insurance or tickets to shows, dining discounts and more. However, the trade-off is paying a higher than average annual fee, which can effectively cancel out the benefits you gain. Be wise and shop around before applying for a premium low rate card.
Is zero percent interest really “zero?”
In this world, you don’t get a free lunch and you don’t get free credit. Any money lent out will attract interest – at some point. Zero percent rates or “interest-free days on purchases” sounds enticing, but what does it really mean? Zero percent rates may apply as an introductory rate or as a balance transfer rate. These apply for a set period then expire. Interest free days on purchases means any purchase you make on your credit card won’t accumulate interest until after that time. So if you buy $100 worth of goods and pay off the $100 in those days, this is effectively “zero” percent interest; until the period ends.
Why is my credit limit set at this number?
When credit card companies or banks approve you for a credit card, they will give you a credit limit. The credit limit is the maximum you can charge to your credit card before you must pay off the balance. Your credit limit is determined in part by your credit history and banking history. Every time you want approval for a credit product, a financial institution will run a credit check to see if you are a credit risk. The higher the risk, the lower your chances of approval. Sometimes you may gain conditional approval with a lower credit limit. Some banks may offer a rise in your credit limit over time, but you are under no obligation to accept.