Save money on your credit card by paying lower interest rates
The lower the interest rate on your credit card, the lower your repayments will be. Learn how to compare low interest rate cards to find the best deals and how to make the most of these offers.
Comparison of Low Interest Rate Credit Cards
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Complete guide to low interest credit cards
What is a low interest rate credit card?
Low interest rate cards have a much lower interest rate for purchases than standard credit cards. The typical range for interest rates on cards in Australia is 15% to 24% per annum, while low rate cards offer rates as low as 10%. Some cards even offer promotional 0% rates on purchases for a fixed period (you can learn more about those in finder’s guide to 0% purchase credit cards).
A low interest rate credit card makes sense if you make regular use of your card and know you won’t be paying off the balance in full each month. If you have a large existing credit card debt and want to pay it off, look for a balance transfer card instead. If you always maintain a zero balance, then a card with extra benefits such as rewards points makes more sense.
What types of low interest credit cards are available?
- Standard low interest rate. These credit cards typically offer rates below 15% p.a. and have a low annual fee. This type of credit card has all the non-essential features removed to keep charges low.
- Low interest rate with introductory 0% purchase rate. These cards let you make purchases with 0% interest during the promotional period (typically a few months). After that period, the interest rate will be higher, but if you shop around, the rate is still likely to be better than with a standard card.
- Low interest rate with balance transfer. These cards let you transfer your existing balance from another credit card (usually with 0% interest on that balance for a fixed period), as well as charging a low rate on purchases.
- Premium low interest rate. Gold and platinum cards generally offer additional perks such as complimentary travel insurance or concierge services. While many platinum and gold cards charge relatively high interest rates, you can find deals with lower rates.
How much money will I save by applying for a low interest rate credit card?
Even a small difference in interest rates can save you major money. Imagine you have $2,000 on your credit card and you take six months to pay it off. With an interest rate of 12%, you’ll end up paying a total of $70.60. With an interest rate of 20%, that figure jumps to $118.30. And the bigger your expenditure, the bigger the difference gets.
How to compare low interest rate credit cards
There’s more to finding the right low interest rate credit card than just looking at the headline interest rate. Here’s what you should consider:
Credit card interest is typically calculated daily on your existing balance, and charged monthly to your bill on the statement date. The lower the rate, the less overall interest you’ll pay. As well as the rate applying to new purchases and your existing balance, consider the following:
- Interest free days. If there’s an interest-free period for purchases, interest won’t be calculated on those purchases until after that period expires. However, interest will apply in full if you haven’t paid off the card balance in full at that time. Learn more about how this works in our guide to interest free days.
- Cash advances. The interest rate for cash advances (whether through an ATM or by transferring money from your card into another account) is usually higher than for purchases. As well, it will generally be applied immediately, without any interest-free period. Avoid using cash advances unless it’s a real emergency.
- Revert rate. On a balance transfer or 0% purchase offer, the revert rate is the interest rate that will apply after the promotional period expires. Avoid deals where the revert rate is high (if it’s the same as the cash advance rate, that’s a clear warning sign).
Fees and charges
- Annual fee. Try to find a card with a low annual fee, but don’t make this your sole deciding factor. A $0 annual fee isn’t helpful if the base interest rate on purchases is a lot higher. Annual fees typically range from $0 (for cards with basic features) to $250 or more (for gold and platinum cards).
- Other fees and charges. Fees may apply for using your card in an ATM; for using the card overseas; or if you overdraw your credit limit. Make sure you’re aware of the relevant charges that apply to your card. If you’re a regular traveller, consider a card with no foreign currency fees.
Pros and cons of a low rate credit card
- You’ll pay less interest on purchases, making it easier to manage your credit card debt.
- You’ll typically be able to take advantage of interest-free periods on purchases.
- You can often combine low-rate cards with other features such as balance transfers or zero foreign transaction fees.
- You’re less likely to receive reward points and other perks.
- You’ll still need to compare fees and charges to identify the best overall deal for you.
- You may not qualify if you have a poor credit history.