Guide to low interest rate credit cards

Last updated: 19 October 2017   By Julia Kukiewicz

LOW interest rate credit cards are perennially popular: they keep things simple in a market obsessed with introductory rates and special offers.

card in wallet female
Credit: joklinghero/

But are they always the best option?

In this guide we look at some of the best low interest rate credit cards currently available for both purchases and balance transfers.

In this article:

We'll see how they measure up to the more headline-grabbing 0% deals. Plus consider whether these cards are worthwhile, given that providers can change interest rates once cardholders are signed up.

Current deals for low rate credit cards

The average APR of a standard credit card is currently around 18%. Low rate cards can offer a considerable reduction then, with APRs typically ranging between 6 and 10%.

Here are a few examples of current low rate card deals, which better illustrate the range of interest rates available.

To see more low rate card deals visit our main comparison page here.

Is there a difference in low rate cards for purchases and balance transfers?

In the past different providers would apply different APRs to different transactions so users needed to consider which card offered the best rate for their intended purpose.

For instance, those taking out a card for new purchases would look for the card, which offered the lowest interest rates on these transactions.

Whilst it's still quite common to see different, usually higher, APRs applied to money transfers and cash withdrawals, most providers now offer the same interest rates on both purchases and balance transfers.

There are still a few exceptions though like the Tesco Low APR credit card, which offers a lower interest rate on purchases:

Similarly, some cards use to offer lower fees for an initial balance transfer, sometimes referred to as a handling fee, which would make these more attractive to those moving money from another card.

But now it seems that most providers offer introductory periods where this transfer fee is waived altogether. Yet the lengths of these introductory periods vary from one provider to another.

Currently, Tesco's Low Rate card, listed above, only offers 0% transfer fees for one month. Lloyds' Platinum Low Rate card offers a longer period, with no transfer fees for 90-days. While the B credit card waives balance transfer fees indefinitely.

Always read the small print

Low rate credit cards aren't quite as simple as they seem, however, as the representative interest rates offered come with some small print.

Risk-based repricing: most credit card providers now 'rate for risk', meaning they offer applicants different rates based on their credit history.

Those that the lender considers most risky - either because of poor repayment behaviour such as missed payments or just as a result of a lack of history - can expect a higher interest rate than the one advertised and applied for.

Under the Consumer Credit Directive (CCD), which came into force in February 2011, just 51% of applicants must receive the interest rate as it's advertised (see here for more on the CCD).

However, this doesn't necessarily apply to low interest rate credit cards.

Some of those that advertise the low interest rate as their main selling point treat it as they would an introductory offer such as a 0% rate: either the applicant is successful and gets the low rate or they're rejected.

What's more, with risk-based re-pricing, even if a cardholder receives the advertised low rate they applied for this can be increased at a later date in the event of a missed or late payment.

Most providers will specify whether they operate a risk-based re-pricing policy and how such a policy works in the summary box on application. Some even publish a range of rates, which they offer so that applicants can assess whether, if they do end up with a higher rate, it might still be low enough to be worthwhile.

Fees: it's also worth noting that the APR represents the full cost of credit, including any mandatory fees for holding the credit card.

If there's an annual fee, for example, the interest rate charged on purchases could be lower than the advertised APR.

Again, it's worth checking this when applying but most low interest rate credit cards don't usually have a fee so, in general what you see is what you get.

Different balances: finally, what the advertised APR can't take into account are the higher interest rates charged on certain credit card transactions.

Even the lowest interest rate credit card on the market will typically charge a higher interest rate and a fee for cash advance transactions.

Recently though we've seen more credit cards bring cash interest rates in line with purchases and balance transfers, so again it's worth checking the small print.

For more on what counts as a cash advance transaction see our full credit cards and cash guide.

Are low rates worthwhile?

As we've noted above, low rates aren't always as they seem, particularly because they can be repriced by lenders but also because the competition for 0% deals is so strong.

So are they worthwhile at all?

Better than standard rates

Low interest rates look best compared with their equivalent standard interest rates, a fair comparison since, unlike introductory rates, they won't run out.

For example, let's see how a difference in interest rate affects a £5,000 credit card debt repaid in full after six months:

18% p.a. 5% p.a
£240 in interest £66 in interest

Even so, however, the lowest interest rate available is 0%, on purchases and balance transfers so let's compare low rate cards with this option.

Low rates vs. 0% rates

0% purchase credit cards, which we cover in full here, only offer their promotional rate for a limited period but for cardholders that just need to finance a period of high spending that's no bad thing.

Similarly, 0% balance transfer credit cards (explainer here) can offer a much cheaper way for those with high interest credit card debts to pay back their balance when they can commit to paying back within the introductory period.

Keeping it simple with a low rate credit card is a solid long-term strategy but it is often more expensive than a special offer.

Get more information on making this decision when it comes to balance transfers in this article but, briefly, as you can see below, if the debt can be repaid within the promotional period a 0% deal is almost always cheaper, even with a higher transfer fee.

5.9% p.a., 2% fee 0% for 20 mths, 3% fee
Fee on £5,000 transfer £100 £150
Interest on £5,000
after 20 months
(repaying £265 per month)
(repaying £260 per month)
Total cost £361 £150

However, low rate, life of balance, credit cards can offer more flexibility if, for example, repayments need to be reduced occasionally due to unexpected bills, where a 0% deal may then end up back on a high standard rate.

Similarly, a low standard rate on purchases may be more suitable for ongoing occasional borrowing, whereas a 0% purchases deal is really most useful for large initial purchases that can be repaid within the 0% period.

Yet low interest rate credit cards are often less expensive for purchases than people expect. Here's a quick comparison:

7.9% p.a. 0% for 15 mths
Time to pay back £1,000
paying £335 a month
4 months 4 months
Interest on £1,000
paying £335 a month
£13 £0

All in all, bear in mind that while the savings offered with 0% deals are compelling they are only cheaper when used in very specific ways.

In terms of long-term usefulness, low interest rates easily win out over introductory deals.

In addition there are now some low rate cards that run introductory interest-free periods on purchases and balance transfers too, like the AA Low Rate credit card.

Albeit these tend to be a lot shorter than those offered on standard rate cards. Still for those thinking of going down the low rate card route it's worth taking advantage of.

For more information on which type of credit card may present the cheapest borrowing option visit our full guide here.

Increasing rates

Finally, it's worth considering that credit card providers always have the right to increase interest rates.

The practice of so-called rate jacking has become more widespread after 2008 when the credit crisis made lenders much more risk-averse.

Although the possibility that rates will increase is always worth keeping in mind when looking at low rate deals, however, bear in mind that it is still fairly rare.

Note also that under the Lending Code as well as mandatory legislation imposed on all credit card providers does give consumers the right to receive certain information about an increase to interest rates, as well as the right to reject the rise if they so wish.

More detailed information on this subject is available in our rights to reject interest rate hikes guide.

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