Glossary Terms

Annual Fee
A credit card issuer may charge you a fee each year for your account. <a href='/glossary/what-is-annual-fee' title='See the full definition of Annual Fee'>read more</a>
Annual Percentage Rate
The cost of credit, including the interest and fees, expressed as an interest rate. APR was created to make it easier for consumers to compare loans... <a href='/glossary/what-is-annual-percentage-rate' title='See the full definition of Annual Percentage Rate'>read more</a>
Interest
Interest is the cost of borrowing money. <a href='/glossary/what-is-interest' title='See the full definition of Interest'>read more</a>
Intro Period
The intro period, also called the introductory period or initial rate period, is the time from the day an account is opened, when a promotional... <a href='/glossary/what-is-intro-period' title='See the full definition of Intro Period'>read more</a>
Intro Rate
A favorable interest rate that applies during a special promotion. The period of time from the day an account is opened until the promotion expires is... <a href='/glossary/what-is-intro-rate' title='See the full definition of Intro Rate'>read more</a>

Types of Low Interest Cards

Generally, there are two types of low interest credit cards. There are cards that offer a zero percent introductory APR for a period of time. Once the introductory period ends, the zero percent APR is replaced by what's called the "go-to rate," or the new purchase APR.

But there are also low interest credit cards that offer low variable APRs on an ongoing basis. These cards are a bit riskier for credit card issuers since they won't make a lot on interest if a consumer carries a balance. For this reason, this type of low interest credit card usually requires excellent credit.

Both types of low interest credit cards have useful purposes. So let's take a look at why these credit cards can be a valuable addition to a consumer's credit arsenal.

Benefits of Low Interest Rate Credit Cards

Low interest credit cards usually come with a variety of other benefits, too:

  • Affordable - These cards make larger purchases affordable by allowing you to make a purchase and pay it off over time, without paying interest. If you do pay interest, a low interest rate insures your payments will be affordable.
  • Save money - If you are carrying a balance on a credit card with high interest rate, you may want to transfer the balance from that card to your low interest rate card. This will help you pay off your balance without having to pay a high interest rate. Ask your credit card provider about the option of transferring a balance from one card to another.
  • Flexibility - Credit cards with low interest rates help in keeping the balance low. The payment can be deferred in the favor of settling debts or to fund some emergency need. Your card will offer you the flexibility of using funds according to the situation.

Features

Low interest rate credit cards have their own unique set of features. Take a look at some of these:

  • Great incentives for signing up for the card
  • Introductory 0 percent interest rate on purchases made to the card in the first 6 to 18 months
  • Introductory 0 percent interest rate on balance transfers made in the first few months of getting the card
  • Low interest rate on cash advances

Annual Fees

Some low interest cards charge an annual fee. In some cases, the fee may be waived the first year as an incentive to sign up for the card. When you're comparing cards, check to see if there's an annual fee. In some cases, the rewards for cards with fees may be worth it for some card users.

Who Should Get One?

Low interest cards are meant for people looking to save money on major purchases or existing credit card balances in order to save money. This card may be right for you if you want to make a major purchase now, but pay little or no interest, or if you have a balance on another card with higher interest. If this sounds like you, compare low interest credit cards to find the best match.

Why Get One?

Reason #1: Making an expensive purchase

It's possible to use low interest credit cards to finance an expensive item. In particular, a credit card with a zero percent introductory purchase APR allows a consumer to make a big purchase without paying interest for a period of time. These types of offers usually last about 12 to 18 months.

Consumers often use this strategy to buy an item that's on sale for a limited time – for instance, an HDTV with a big screen. Be aware that when the introductory rate ends, the regular purchase APR will be applied to the entire cost of the purchase, no matter how much left you owe on the card.

If this strategy is used, determine how much your monthly payments will have to be to pay the item off before the end of the introductory period. If it isn't paid off, then interest starts accruing on the balance. If that happens, the HDTV, or whatever else was bought, is no longer such a great deal.

Reason #2: Surviving a financial emergency

Honestly, it's never a good idea to carry a balance. But there are times when life throws us a curve ball. Maybe the roof starts leaking or the washing machine finally breaks down for good. Or maybe a family member is experiencing a health crisis. Even with an emergency fund, expenses like these are hard to cover.

For this reason, it's nice to have a low interest credit card on hand. This offers an opportunity to spread out the expense over a couple of months without seriously impacting current cash flow or wiping out the emergency fund.

Remember that this should be considered a short-term, low-interest loan, so don't carry the balance for months and months.

Reason #3: Transferring debt from a high-interest credit card

It was mentioned in Reason #1 that some cards offer zero percent introductory APRs on purchases. There are also credit cards that offer a zero percent introductory APR on balance transfers. A consumer can transfer a balance from a high-interest credit card to a balance transfer card and avoid paying interest during a specified time period. And balance transfer offers generally last about 12 to 18 months, too.

This is a golden opportunity to pay off debt while paying zero interest. The only hitch is that there's a transaction fee, which averages around three percent of the amount transferred.

Reason #4: Paying fewer fees

Many low interest credit cards don't have annual fees. This is because some of them, especially the ones with very low ongoing rates, don't have many frills or rewards. They're sometimes called vanilla credit cards. Their main appeal is the low interest rate.

Some of the credit cards that offer a limited zero percent purchase APR or balance transfer APR for a period of time also offer rewards. But once the time period ends, these cards tend to have higher APRs than the credit cards that have variable low rates on an ongoing basis. So keep that in mind.