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How a low interest credit card can work for you

How a low interest credit card can work for you

Looking for a credit card you can hang on to for a few years? Don’t want to switch regularly? A credit card with low interest and other charges could be the answer.  Understand how low APR credit cards work and compare to find the right card for you.

Anelda Knoesen
From the Money team
minute read
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Posted 16 MARCH 2020

Why get a low APR credit card?

If you can get a credit card with low interest and a low or no annual fee, you may be able to borrow money for less, pay off your debt faster and keep your repayments affordable.
And if you have a low rate card you’re happy with, you may not want to switch for a while, making managing your finances simpler.

How does credit card APR work?

APR stands for annual percentage rate. It represents not just the interest on a credit card or loan, but other standard charges too, such as arrangement fees. 

‘Representative APR’ is what you’ll see when credit cards are advertised. It shows you what your borrowing would cost if you borrowed £1,200 over one year.  

Credit cards can have different interest rates and charges, depending on how you use them. For example, a card might have a rate of 19.5% for purchases and 27.9% for cash withdrawals. The representative APR shown for cards is usually based on the standard purchase rate. 

However, although you can use APR to compare credit cards, it’s important to be aware that the rate shown isn’t necessarily what you’ll get. This will depend on factors such as your credit history. The representative APR advertised has to be available to at least 51% of applicants but others will be offered a different – usually higher – rate.

What are the disadvantages of low APR credit cards?

Cards offering a low APR are unlikely to come with long interest-free periods for purchases and balance transfers. And they might not offer rewards.
The credit limits for low rate cards can be low, so the card might not offer you enough credit for what you want to use it for.
If you have a poor credit history, you’re unlikely to be able to get a low rate card. In this case, you might want to look at cards designed for building credit.

Should I get a low-rate credit card?

It depends what’s right for your circumstances. The alternative is getting a card that offers low or no APR for a fixed period.
For example, if you need breathing space to pay off your credit card debt, it may be worth looking into a card that offers 0% on balance transfers. If you want to make a large purchase, a card that offers 0% interest on purchases for a set period may be worth considering.
To make these work for you, you’ll need to pay off the balance within the interest-free period.

What is considered a low APR for credit cards?

At the time of writing – January 2020 – average interest rates for credit cards were at record highs of over 20%. In the light of this, a low APR card could be considered as one with a rate of 12.9% or less. 

What’s the best low rate credit card?

It depends on what’s right for you. When you’re comparing, you can look at:

  • APR
  • Any non-standard fees and charges – for example, for missing a payment or for late payments
  • 0% interest periods for balance transfers and purchases
  • Rewards or points 
  • Customer service
  • Eligibility criteria

How can I make the most of my card?

Ideally, you’ll pay off your balance in full every month. But if you can’t do this, you need to make at least the minimum monthly repayments – otherwise, you’ll be hit with charges. The more of your balance you clear each month, the less you’ll pay in interest overall. The advantage of low interest cards is that if you do need to borrow for a while, you’ll potentially be paying less interest than you would on other cards.

Will I be able to get a credit card with low interest?

The APR you’re offered will depend on a number of factors, including your credit history and personal circumstances.
If you have a good credit rating, you may be able to get a low rate card – but you don’t have to leave it all to guesswork. You can find out what cards you’re likely to be accepted for by using our credit card eligibility checker.

That way, you can avoid making multiple applications, which, if declined, will impact your credit record.

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