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Low APR Credit Cards Guide
Banks use their attractive interest free credit cards to grab consumer’s attention but if you have a large debt and are serious about clearing it, then these probably aren’t the best cards for you.
Low APR cards offer a lower rate of interest on your balance, so while you won’t avoid paying interest each month, it will always be at a much lower rate.
If you tend to only pay the minimum amount off your debt each month then going for a zero per cent credit card might be tempting, but it won’t change your bad habits. Once the promotion has ended, you could end up paying around 17 per cent APR.
Tiered interest repayments
All credit cards operate tiered repayments. This means that the “cheapest” part of your debt - the bit with the low interest rate - is paid off first, and those purchases carrying the highest rates of interest are paid off last.
For example, if you have transferred a balance of £500 to your card and also taken a cash advance of £100, then make a repayment of £80, the payment will first be allocated to those balances that are at the lowest rate of interest, such as low rate balance transfer. Debts charged at more expensive rates, such as any additional spending will sit in your account, adding up interest, and be the last to be paid off.
This means that once you pay off the original transferred amount, you’ll pay the standard APR on any outstanding balance.
Expensive spending
You also need to be aware that certain types of spending attract different rates of interest. While you know that you’ll pay the lower rate on your transferred balance, if you take out any cash, or do any online gambling, you’ll end up paying an even higher rate than the standard APR - as high as 30 per cent with some cards.
This type of spending - called instant cash transactions - also begins to add interest immediately and some banks have recently widened what they consider to be an instant cash transaction to include mortgage repayments and buying gift vouchers. These will usually have a normal interest period of around 56 days in which you can pay them off, before they start adding up at the higher rate, and shouldn’t start gaining interest from the moment they go through but these details vary by bank so make sure that you’re always well aware of your terms and conditions before making any financial agreement like taking out a credit card.
Which is the best card for me?
These cards best suit people who don’t think they’ll be able to pay off their balance in the time offered by a zero per cent credit card, or who want to lower their repayments without paying a transfer fee. If you do think you can clear your debt quickly go for on a 0% balance transfer or 0% purchases
Otherwise, compare low rate APR Credit Cards to see which ones have the lowest interest rate. Just be sure to read the terms and conditions carefully to ensure that you don’t end up paying out more than you expected.
