What is a Low-interest Credit Card?
A low-interest credit card is a credit card option that offers an interest rate lower than a traditional credit card. Such a card's interest rate is often variable, but there are also options with a fixed rate.
A credit card is considered low-interest if the APR of the card starts at 12%-14%. The percentage of variable APR depends on the value of the prime rate. Quite often, such credit cards have a 0% intro APR period during which APR is not charged for purchases and balance transfers.
How Low-interest Works on Credit Cards?
A credit card allows the cardholder to have a line of credit with a certain balance. The borrower can make purchases using this money, that is, without spending his own. The card issuer charges a fee for using this credit balance, which is what interest is.
Low-interest credit cards allow borrowers with a good or excellent credit history to have an interest rate lower than traditional credit cards. Moreover, most of these cards have an initial period of up to 15 months in which the APR is 0%. After the end of this period, APR is accrued every day for the amount that was not paid on time. The daily APR is calculated as the annual APR divided by 365. At the same time, if the cardholder pays the entire debt before the start of a new billing cycle, then they should not pay interest.
For example, if a credit card has an APR of 20%, then the daily rate will be 0.055%. If the cardholder has an unpaid debt of $1,000 on the first day, then the debt will increase by $0.55 the next day. By the month's end, the debt amount will be $1016.5. The amount of interest, in this case, is $16.5.
Thus, the accrual of APR may accumulate a large amount of debt to which late fees and penalty APR may also be added.
Pros and Cons
- The interest rate is lower relative to other credit cards. The most significant benefit of low-interest credit cards is their lower APR than other cards. Borrowers with excellent credit scores can have an APR in the region of 12%-14%. With such an interest rate, the cardholder, even if there is a debt, after the completion of the billing cycle, will have to pay a not-so-large amount of interest. Such a card is great for making large purchases, as low-interest credit cards have an APR lower than any consumer loan.
- Availability of 0% Intro APR period. Many low-interest credit cards offer holders an introductory period of 12-15 months, during which the APR for purchases and balance transfers is 0%. Also, the foreign transaction fee during this period is usually lowered by a couple of percentage points. During the intro period, it is enough for the borrower to make on-time minimum payments to save 0% APR.
- There is an opportunity to save on an existing loan. If the cardholder already has a credit card debt, then by opening a low-interest credit card, they can make balance transfers. Credit card balance transfers allow the borrower to do debt consolidation and thereby reduce the APR and repay the loan faster.
- The cardholder can receive cash rewards. Many of the low-interest credit cards are also cash rewards credit cards. Such cards allow holders to earn bonus cash from any purchases. Moreover, some cards offer increased cashback on some bonus categories, such as purchases at grocery stores, gas stations, and other combined purchases. Cash rewards credit card allows you to redeem rewards as a statement credit, gift cards, or cash back.
- High credit requirements. Low APR credit cards are only available to borrowers with good or excellent credit. Most often, credit card issuers require a credit score of at least 700. Credit card companies have more confidence in such borrowers and therefore issue such favorable loan offers only to borrowers with a high credit score.
- The cards offer a few perks. Low-interest credit cards offer fewer special discount offers and perks for cardholders than other credit options. For example, some such cards may offer cell phone protection with the condition that the borrower pays a monthly cell phone bill from this card. However, perks like this are not suitable for all cardholders. Travel rewards credit cards offer various travel perks, such as discounts on hotels or extra luggage on the plane. Such offers may be of interest to more borrowers.
- Other types of credit cards offer more favorable sign-up bonuses and less difficult conditions for obtaining them. Such cards do not offer the most profitable sign-up bonuses. Most often, the sign-up bonus is increased cash back for certain categories or functions, such as an unlimited cash back match, which is needed only by borrowers who are chasing cash back. Moreover, to receive a sign-up bonus, the cardholder must fulfill a certain condition that is not always easy to fulfill.
How to Choose a Low-interest Card?
When choosing a suitable credit card and a suitable credit card company, a potential borrower needs to consider several important factors before account opening.
- Pay attention to the starting APR. Since such cards have a variable APR, the borrower should consider the starting APR to compare loan offers. Best low-interest credit cards have an initial APR of around 12%. A borrower with a high credit score can expect an APR of 15-17% in this case. Since the low-interest rate is the main advantage of such cards, this factor is the most important.
- Consider low-interest credit cards that do not offer a 0% intro APR period. The borrower should look for the card with the longest such period to get the maximum benefit from using this credit card. The intro period must have 0% APR for both purchases and balance transfers.
- Assess all possible fees that the card may require. If the cardholder plans to use it abroad, then they should pay attention to foreign transaction fees. The foreign transaction fee is usually about 5%, but during the intro APR period, it can be 3% or less. A balance transfer fee is important to consider for a borrower who wants to make debt consolidation. The borrower is also advised to look for a credit card with a $0 annual fee. However, some cards that require an annual fee can also be considered as, in return, they usually offer a lot of bonuses and perks.
- Conider bonuses, cash back, and perks. Different loan offers have different sign-up bonuses and additional perks. The borrower should choose which perks are more suitable for them, depending on their needs.
To compare loan offers, the borrower is recommended to turn to open Internet sources that have articles with comparative tables. Such tables take into account all of the above key factors of different proposals.
Comparison of landers is best made by obtaining a set of pre-qualification. Upon receiving pre-qualification from the lender, the borrower can study the loan agreement, which specifies APR and fees based on the borrower's credit score.
How to Apply for a Low-interest Card?
Recommendations for eligibility
For account opening, the borrower must be 18 years old and be a citizen or permanent resident of the United States. To confirm the identity of the borrower, the lender may ask them to upload a driver's license, passport, or state-issued ID.
Low-interest credit card issuers have high credit requirements for potential borrowers.
The minimum credit score that a lender may require is 650. However, most lenders require a 700 credit score. It is important for the lender that the borrower has healthy spending habits and can repay the loan on time.
Also, the borrower must not have been bankrupt for the last 7 years and more than 30 days of late payments on previous loans.
A potential cardholder needs to have a debt-to-income ratio below 45% and have a stable source of income that brings them income for at least 2 years. To confirm the borrower's income, landers are usually asked to provide pay stubs, bank statements, W-2s, or tax returns.
The Application Process for Account Opening
To apply for an account opening, the borrower needs to go to the lender's website and click on the "Get Started" and "Apply Now" buttons.
- The future cardholder needs to enter personal information such as name, phone number, SSN, email, residential address, and zip code.
- You need to enter information about whether you own real estate or rent housing and how much they pay for it per month.
- On the next page of the application form, the borrower needs to enter information about the employment status, the name of the employer, and the position that the borrower holds.
- After that, you need to fill out the amount of annual income before taxes.
The application can be completed in 10-15 minutes. Credit approval comes in a couple of hours.
How to Reduce Credit Card Interest?
It is possible to use a credit card without paying interest at all.
During the intro APR period, which is offered by most of these cards, interest is not accumulated on the borrower's balance sheet since, during this period, the APR is 0%.
After the end of this period, interest begins to accrue on the balance that remains after the end of the billing cycle. To avoid paying interest, the borrower needs to pay the loan debt monthly.
For this to be possible, the cardholder is recommended to use only a small part of their line of credit, which they can pay at the end of the month.