How to Qualify for a Low-Interest Credit Card

How to Qualify for a Low-Interest Credit Card

Eric Bank |Aug 7, 2019

It's All About Your Credit

Having a low-interest credit card is part of a life well-lived. For those who have them, it means the ability to finance purchases cheaply. For those who want them, it’s the reward for building (or rebuilding) excellent credit.

Read on to learn about low-interest credit cards and how to get one.

What Is a Low-Interest Credit Card?

Credit card interest rates are expressed as an annual percentage rate (APR). This is a compound interest rate that may also include fees that are not separately charged. You pay interest on credit card balances that you don’t fully repay within the grace period, which extends a few weeks beyond the end of the monthly billing cycle — for purchases.

Cash advances, which may have a different APR, have no grace periods. The point of APR is that it enables you to directly compare credit cards to one another.

Types of Low-Interest Credit Cards

In a nutshell, low-interest credit cards include:

  • Cards for those with excellent credit. This is usually defined as a FICO credit score above 800 on the 300-850 range.
  • Cards that are designed for students. Many students have no credit history and therefore have low credit scores. Student credit cards give their owners a break, perhaps in the hope that the student will continue to hold the card after graduation.
  • Business credit cards. However, the business (and/or its owners) should have good-to-excellent credit to qualify for a low rate.
  • Secured credit cards. The card owner posts collateral in the form of a cash deposit in a bank account. The card issuer can access the cash if a payment is late or less than the required minimum. The interest rate is lower than that of an unsecured card because the collateral reduces the issuer’s risk of loss.
  • Cards with introductory offers. This is any card that, at least temporarily, offers an introductory APR of 0%.

Average APRs for Different Credit Types

Typically, credit card APRs range from the low double digits to about 30%. A source puts 2019’s average APR on all new accounts at just above 19%, but those with excellent credit can currently get an APR of around 14% on average.

APRs for the remaining score categories (good, fair and poor) all average more than 20%. However, credit cards for students and businesses average between 17.5% and 18.5%. Secured cards charge just below 19%, on average.

APRs reflect current economic conditions, including the Fed Funds Rate and the margins that card issuers charge. During the Great Recession, APRs were about two to three percentage points lower, and have been rising ever since.

Introductory APRs

If today’s APRs seem a little steep, perhaps you’d be interested in a 0% APR. That’s not far-fetched at all. Rather, it’s a commonplace introductory rate that many credit cards offer. If you have average or better credit, you can easily obtain a card with a 0% introductory offer that extends from six to 18 months. The rate applies to purchases and, usually, to balance transfers. However, cash advances aren’t invited to this party.

Once the introductory period expires, the card reverts to its regular APR. For many, that’s the cue to replace the card with another and thereby enter a new introductory period.

If you have a large balance on your card at the end of the introductory period, you might choose a new card that offers 0% interest on balance transfers as part of its introductory offer. However, you’ll likely have to pay a fee around 3% for each transfer.

Never Pay Interest

It’s simple to get a permanent 0% APR credit card. Just pay your balance each month within the grace period. The card issuer might hate you for it, but you’ll avoid paying even a penny on interest. If you pick a card with no annual fee, you pay nothing at all for using your card (except for cash advances, which always charge interest).

Of course, the key is discipline: don’t charge more than you can pay for within the next few weeks. This makes your card a convenient alternative to writing a check or using a debit card, but you forego the ability to finance your purchases for more than a few weeks.

Pros and Cons of Low-Interest Credit Cards

On the plus side:

  • You save money on purchases and balance transfers by paying less interest on balances you carry forward more than a month. This leaves you more money to use elsewhere.
  • They help you pay your debts faster (thought use this credit card calculator before making any decisions).
  • Great way to finance big-ticket purchases.
  • Source of less-expensive emergency cash when you need it.
  • Cards for those with excellent credit often have great benefits and rewards (cash back, points or miles).

Are there any downside to low-interest credit cards? The following might be possible:

  • You might feel encouraged to overspend and end up digging yourself into a debt hole.
  • Some low-interest cards charge high annual fees.
  • More expensive than some alternative forms of credit.

However, if you choose a card with a 0% annual fee and control your spending impulses, you are ahead of the game. Some folks object to the use of any credit cards, but that’s a different discussion.

Who Benefits from a Low-Interest Card?

As we’ve established, there is very little downside to owning a low-interest credit card, if you can qualify for one. Those who benefit the most are folks who regularly spread out their repayments over several months. The ability to finance a purchase comes in handy when you are planning an expensive vacation, a wedding, a big-ticket purchase, etc.

Keep in mind, even a low-interest card, with an average APR of 14%, represents expensive credit compared to some alternatives. You might pay considerably less interest on a home equity line of credit or a personal loan.

How to Get a Low-Interest Credit Card

  1. To qualify for a low-interest card, you should establish an excellent credit score. That means paying your bills on time, making more than the minimum payment and utilizing only a portion of the credit available to you. It also means avoiding bankruptcy, foreclosure, defaults and collections.
  2. If you are rebuilding your credit, consider a secured card, which will come with a slightly lower APR than its unsecured counterpart, albeit with a lower credit limit.
  3. If you don’t mind rotating through a new credit card every six to 18 months, you can get cards with an introductory 0% APR.
  4. Finally, if you avoid unpaid balances, any card becomes a de facto 0% APR card. Unless you have some overriding reason to get a card that requires an annual fee, choose a no-fee card.

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