Low interest credit cards

What is a low rate credit card?

Generally, there three main types of cards offers that fall into the low interest category:

• Low ongoing purchase rate - Most credit card providers from the big 4 banks to credit unions offer a basic low rate credit card, where the ongoing interest rate will be less than 14% p.a. These credit cards generally do not have rewards programs or extras like insurance. Like all credit cards, they allow you to make purchases online or in person on credit and pay them off over time. This section of our site mostly deals with these cards.
• 0% purchase rate - Some credit cards will have introductory offers that allow you to make purchases on your card without having to pay interest for several months. The period is usually between 3 - 12 months, after which purchases will revert to the standard purchase rate for the card. There are also other cards that maintain a 0% p.a. purchase rate, though these often charge a monthly fee rather than a single annual fee.
• 0% balance transfer. Another popular option for reducing the interest you'll pay is a balance transfer credit card. This is where you transfer a balance from another card, to the new card at a reduced interest rate (often interest free).

Features of low interest rate cards, what should I look for? 

Low rate cards have the same standard features as regular credit cards, these include:

• Interest free days - Most low interest cards will have up to 55 interest free days. This means if you pay your balance off in full each month you will not pay any interest at all.
• Worldwide access - You'll be able to make purchases online or in person worldwide through the MasterCard, Visa or American Express network. Your bank may charge you foreign transaction fees for overseas purchases, so if you’re planning to travel a lot, you may want to look for a card with a 0% foreign exchange margin.
• Digital payment options - Having contactless payment options like Apple, Google or Samsung Pay can be incredibly handy if you want to pay on the go.. With these nifty perks, you can afford to leave your wallet at home.
• Cash advances - While your card will allow you to make cash withdrawals, you may want to try and avoid using your credit card for this. Interest free periods generally do not apply for cash advances and the cash rate is generally much higher than the standard purchase rate for the card.

Some low rate cards may also offer more premium features. Even though generally more perks are available on credit cards with higher purchase rates, there are some exceptions. These cards may come with higher annual fees, while still having relatively low interest rates.

• Complimentary insurance - Many credit cards come with some level of travel insurance cover and other insurances like price protection, extended warranty and purchase cover. Be sure to check eligibility criteria as this can vary, and may require activation.
• Concierge - Some low rate platinum cards will come with concierge service to assist you with shopping, restaurant or entertainment bookings.
• Rewards points - Though many rewards credit cards have higher purchase rates, there are some rewards cards that let you build up points despite having a lower rate.

What fees could I pay with a low interest card?

Since you are looking at a card with minimal interest rates, you may have to pay some fees. Here are some fees to keep in mind with a low rate card:

• Annual fee - Most low rate cards will also have fairly low annual fees, with some even waiving the fee for an introductory period, but more premium low rate cards can charge a higher fee.
• Cash advance fee - If you make a cash withdrawal you may either pay an upfront fee or a percentage fee of the cash advance amount (whichever is higher). This is on top of the cash advance rate, which is the interest rate charged on cash withdrawals.
• Foreign transaction fee - Low rate credit cards are generally not designed for frequent international travel, so you would expect to pay a foreign exchange fee on any purchases or withdrawals. The standard charge is around 3% of the Australian dollar transaction account, but there may also be a set fee per transaction in a foreign currency.
• Late payment fee - Late fees can be completely avoidable so set up automatic monthly deposits for the minimum payment. Late payment fees can be as high as $30.
• Replacement fee - If you lose your card you'll need to pay a replacement fee. Be aware that the cost for replacing a card overseas can be much higher than if you lose your card in Australia. There may also be an emergency card fee on top of the replacement fee if you need the replacement card urgently.

Pros and cons of low rate cards

It’s easy to look at all of the numbers being advertised by credit card companies and to think of a low rate credit card as the right choice for you, but it’s important to weigh up the pros and cons.

Are low rate cards for everyone?

If you don't always pay your card balance off in full each month then a low rate card might be a great option for keeping your interest repayments to a minimum and make it easier to pay back your debt in a shorter time frame.

However, for many people, other credit cards might be a better fit. This might be the case if:

• You always pay off your balance in full each month. If you always pay off your balance within the interest-free period, then a card with a low interest rate won't matter, as you won't pay interest charges. You might want to consider a card with a low annual fee, or a rewards credit card.
• You travel internationally more than once a year. Foreign exchange fees can add up, so if you're going to be travelling overseas regularly, you might want to prioritise a card with no foreign exchange margin, or a card with frequent flyer benefits. Check out some travel credit card options!
• You're looking to play the points game. If you’d like to start accumulating points and earning more rewards, many of the more attractive credit cards have higher purchase rates.

How much could I save with a low rate card?

The amount of money you'll save by opting for a low rate card over, for example, a rewards card, will depend on your ongoing spending and repayment habits. 

The lowest purchase rate available in the Mozo database at time of writing is 7.49% p.a. In contrast, the average purchase rate in the Mozo database for rewards cards is 20.11% p.a. That’s 12.62% higher than the lowest rate card you could be looking at, not including 0% offers on credit cards.

Let's look at the following scenario as an example:

Say you have a credit card with a balance of $3000. This card does not have an annual fee, but the interest rate is 19.99% p.a. You are paying back $300 a month. It will take you 1 year, and cost you $309 in interest to pay off the card according to Mozo's credit card debt repayments calculator, assuming you didn’t add to the debt balance along the way. 

If you switched to a low rate credit card with a 9.90% p.a. interest rate and a $60 annual fee, you’d pay off that same balance in 11 months, and you’d only pay $204 in interest and fees combined.

Keep in mind that many people don’t ever get their balance to zero, as they make new purchases on the card while paying off the balance that has rolled over. This means that the amount of interest paid over the life of the card is much higher. This is why having a low ongoing interest rate is so important if you do carry a balance on your card regularly.

If you’re interested in finding out more about credit cards, check out the Mozo picks for best credit cards.