Low-interest versus Interest-free
Interest rates are charged by bank or lenders to cover the cost of lending you credit. The longer you take to pay this debt, the more interest you’ll pay. A low-interest card means you’ll pay less each month on interest payments.
While some features will not be available with low-interest credit cards, many still offer interest-free periods of up to 55 days. Any amount owing after this agreed time will be charged interest, albeit at a lower interest rate compared to other cards in the market.
Minimum repayments will vary between cards and lenders, but are typically around 2 or 2.5% of the entire balance. That said, you should try to make smaller repayments throughout the month. This way, you can spread out the cost of your bill over a few pay cycles, instead of putting pressure on yourself to do so all at once.
Most low-interest cards apply a different interest rate if you use the card to:
- Withdraw cash from an ATM (i.e. a cash advance)
- Complete a balance transfer
- Convert cash to foreign currency or traveller’s cheques
Types of low-interest rate credit cards
There are a few different options when it comes to choosing your low rate interest card.
Standard low-interest rate
Many Australian financial experts believe a typical low-interest rate card is often below 15%, with an affordable annual fee.
Premium low-interest rate
This is a credit card offering a low-interest rate in addition to rewards commonly included with platinum cards. It may showcase benefits like complimentary travel insurance, for example.
No frills low-interest rate
The features on this card are kept to a minimum. Interest-free days may or may not be included, and a small annual fee may be charged to maintain the low-interest rate.
Low-interest rate with introductory purchase rate
This card will offer a low-interest rate on purchases for an introductory period. Make sure you understand how long the introductory period lasts and what the interest rate reverts to after this time, as most of the spending on your card may likely be for purchases.
Low-interest rate with introductory balance transfer rate
A low-interest rate on a balance transfer will only be offered when taking out the card. Anything you owe after this time will be charged at either a standard purchase rate or a cash advance rate (e.g. after 12 months).
Things to consider when comparing low-interest cards
We understand that making an informed decision is important to ensure you getting the best card to suit your needs. Below are some considerations to take into account when comparing low-interest rate credit cards.
- Interest rate: This could be the most important consideration when selecting your credit card. It determines how much debt you’ll gain if you fail to pay off the balance in full.
- Interest-free days: If you have an interest-free period (e.g. 55 days), you have until then to pay off the balance. Remember, any balance you carry over from one month to another will be charged interest. Interest-free days only apply to purchases made on your card within the billing period.
- Annual fee: You may have an annual fee tacked onto your new card, so it pays to shop around to find a lowfee that suits your finances.
- Other fees and charges: Make sure you read the terms and conditions for your card to understand any charges or fees associated with your card. For example, how much could you be charged for withdrawing money from an ATM?
- Introductory rates & balance transfers: Some banks and lenders offer a very low (or even 0%) introductory rate on balance transfers. If you can pay off your existing balance in a short time frame, this option is worth considering.
- Revert rate: It’s important to know what the interest rate reverts to after the introductory rate or balance transfer concludes. This will have a big impact on your future repayments and debt accrual.