Guide to low APR credit cards

·5-min read
 (PA Media)
(PA Media)

Whether a large expenditure is looming on the horizon or you want to pay off existing credit card debt, a low APR credit card can provide a low-cost solution. Read on to find out how this type of plastic works.

What is a low APR credit card?

A low APR credit card is one that offers a low rate of interest for as long as you have the card. APR stands for annual percentage rate, which accounts for both the interest rate charged and any additional charges or fees.

With a low APR credit card, there is no deadline by which you need to have cleared your debt before the interest rate suddenly jumps. In comparison, 0% purchase and 0% balance transfer credit cards charge no interest for a set time, but once that period is over, the interest rate increases dramatically.

Interest rates on low APR credit cards are usually competitive, often sitting in the region of a representative 7.9% and 9.9% APR (variable) – considerably lower than the representative 20% to 23% APR (variable) charged by many standard credit cards.

And even though low APR credit cards come with variable interest rates – meaning the rate could go up or down at any point – it will usually stay well below the market norm.

Related: Compare Credit Cards & Find The Right Offer For You

Is a low APR credit card right for you?

If you’re unlikely to qualify for an interest-free credit card or you would simply prefer not to use one, a low APR credit card can provide a viable alternative.

Although 0% credit cards initially work out cheaper, if you are unable to clear your balance before the interest-free window ends, you’ll need to transfer your remaining debt to another 0% balance transfer credit card to avoid being charged interest.

Low APR credit cards can therefore be a good choice if you don’t want the hassle of paying off your debt within a set period or you want to avoid switching credit cards on a regular basis.

The low interest rate can apply to:

  • Purchases

  • Balance transfers

  • Money transfers – where you move money from your credit card directly into your bank account.

Some credit cards even charge a low APR for cash withdrawals. However, if you use your card to take money out of a cash machine, note that you’ll be charged interest from the date of the transaction – even if you repay your balance in full that month. There’s also likely to be a cash withdrawal fee to pay.

What are the advantages of a low APR credit card?

There are some clear advantages to a card in your wallet that charges one reasonable rate of interest:

  • Save money: If you struggle to repay your credit card balance in full each month, using a low APR credit card will dramatically reduce the amount of interest you pay, helping you to clear your debt faster.

  • Easier to manage: There will be no sudden jump in interest rate, so there’s no pressure to clear your debt within a particular timeframe.

  • Your credit rating could benefit: It can be better for your credit score if you’re not frequently switching credit cards to remain on a low rate – regularly switching credit cards can bring down your credit score.

  • Balance transfers may be fee-free: Some low APR credit cards won’t charge balance transfer fees, so you can avoid paying around 3% extra simply to move over a balance from another card.

What are the disadvantages of a low APR credit card?

But these advantages should be weighed up against the following potential downsides:

  • There are cheaper ways to borrow: A 0% purchase, balance transfer or money transfer credit card can work out cheaper, providing you are able to clear the balance before the 0% deal ends.

  • You may not get the rate advertised: The advertised APR only needs to be offered to 51% of successful applicants. The remaining 49% may be offered a different, higher rate. You’re more likely to be offered a higher APR if your credit score is low.

  • The low APR may not apply to all transactions: Depending on the card, you may be offered a low APR for purchases, but balance transfers and cash withdrawals could be charged at a much higher rate. Always check carefully to ensure you don’t get caught out.

Low APR credit card tips

1. Look for the cheapest deal

When comparing credit cards, choose one that offers the lowest rate and fees for your desired use. If you want to transfer over an existing credit card balance for example, look for the card with the lowest APR on balance transfers and the lowest transfer fee.

2. Check your credit score

There are various online services that allow you to check your credit score free of charge, and it’s worth checking yours before you apply for credit. If your credit score isn’t up to scratch, take steps to improve it such as correcting mistakes on your credit report, registering on the electoral roll and paying bills on time.

3. Use an eligibility checker

Eligibility checkers show how likely you are to get accepted for a particular card so that you only need apply for the cards you have the greatest chance of being offered. Eligibility checkers involve ‘soft searches’ so won’t hurt your credit score.

4. Set up a monthly direct debit

To avoid late payment fees and unnecessary interest charges, set up a direct debit to make automatic credit card payments each month. This should be for at least the minimum payment.

5. Pay off more than the minimum if you are able

Minimum payments are typically set at low levels, often around 1% to 2.5% of the balance, and only paying this amount each month can result in you paying back far more than you originally borrowed. The more you choose to repay each month, the quicker you’ll repay the debt.

Related: Compare Credit Cards & Find The Right Offer For You

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