The interest rate will often be the first characteristic you notice when you consider a new credit card, and for good reason. In the long run, a difference of one, two or even five percentage points can make a big difference on what you pay in finance charges.
Because of this, you'll often see low interest credit cards promoting their APRs (annual percentage rates) in big type in print and online ads. These promotions may leave you wondering, "What is a low interest card? And if they're so great, why would anyone get anything else?" Low rate credit cards can offer great benefits, but there are a few things you should know before you apply for one.
Is a low interest credit card right for you?
A low interest rate is particularly important for card holders who carry a balance from month to month. If you're still paying for last summer's vacation or your living-room furniture, using a card with a rate in the single digits is a good financial move.
On the flip side, if you pay off your balance each month, your card's rate may mean less to you. But some card holders prefer the peace of mind of knowing the card has a low rate, just in case they need to carry a balance in the future.
Also, not everyone is eligible for the best low interest credit cards. These deals usually are targeted to applicants with good to excellent credit histories. Cards targeted to those with poorer histories often have APRs that are double or triple that of the best low interest cards. Making yourself eligible for lower rates is one very compelling reason to pay close attention to your credit's health.
Do low interest cards have drawbacks?
Many card offers come with a teaser rate--an introductory APR that only lasts for a certain amount of time and may only apply toward certain types of transactions (balance transfers, for instance). But if you have a big balance to pay off and the low teaser rate ends after six months, you may find yourself with a higher-rate card before you've gotten traction on paying off your balance.
In addition, even cards without introductory offers--or with favorable standard APRs--may have an adjustable rate. In those cases, that 11 percent APR you searched hard to find could increase based on the most recent prime rate activity.
Always read the terms carefully before you apply for any card. Card terms are presented consistently, so you can compare offers easily to see which card better fits your situation. You also are entitled to a written notification if you are turned down for a card. If you are turned down, use the notification from the card company to plan your strategy for boosting your creditworthiness. The Federal Reserve's website has more information about how credit reports affect your financial options.
How can you get a low interest card?
Consider these tips for finding the best low interest credit card:
- Keep an eye out for new rates or special offers in your mailbox or online. Online sites often have the most recent information about current deals.
- Talk to your current credit card company about a lower rate or a different card within their family of cards.
- Look at offers from credit unions or membership associations. Many financial companies with limited memberships offer lower standard rates.
With a low rate, more of your dollars go toward paying down your balance instead of paying for interest. And keeping your credit card balance manageable is one of the keys to staying on solid financial footing.