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Low-Interest Credit Cards

Written by

Shaun McGowan

A low-interest credit card is a low-rate, low-fee credit card which generally does not include a rewards scheme or other perks. They have lower rates than other credit cards, with purchase rates starting from 7.49%. The low interest rate does not apply when making a cash advance withdrawal.

How does a low-interest credit card work?

A low-interest credit card can be used in stores and online, with the lender providing funds for the transaction and then billing you for the balance at the end of the month. The low interest rate can provide a safety net if you can only pay the minimum amount each month.

Most companies will charge you interest that compounds daily. The compounding interest increases your effective annual rate (EAR), which is how much you will actually pay on your credit card when adjusted for compounding interest. This interest payment is due once per month.

You’ll also be asked to make a make the minimum repayment of 2.5% to 3% of the balance owing. If you don’t pay this amount, then you may be liable for a late payment fee and additional charges.

Some low-interest credit cards come with additional benefits such as:

  • Travel insurance
  • 0% balance transfer
  • 0% interest for 15 months
  • Price protection
  • Purchase protection
  • Flight inconvenience insurance
  • Transit accident insurance
  • Smartphone screen insurance
  • Extended warranty insurance
  • Rental vehicle excess in Australia

Some cards come with interest-free days while others do not. Some lenders offer up to 55 days interest-free, which can further help you save money on interest payments.

How much does a low-interest credit card cost?

The annual fees for low-interest credit cards are typically lower than gold, platinum, or black cards. You can expect to pay between $29 to $100 per year to use your card.

Other fees that may come with your card include:

  • Foreign currency conversion fee
  • Balance transfer fee
  • Over the counter payment fee
  • Over limit fee
  • Late payment fee
  • Cash advance fee
  • Dishonour of direct credit fee
  • Replacement card fee
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You can expect to pay a significantly higher purchase rate if you use your card to withdraw money at an ATM as a cash advance. In some cases, the purchase rate is doubled.

The table below shows you how much interest you’d pay if you had a credit card charging you 11.99% per annum with a $2,000 balance over a period of one year. Note that the effective annual rate (EAR) is higher than the purchase rate as it accounts for compounding interest.

Principal

$2,000

Purchase rate (p.a.)

11.99%

Daily Rate

0.000328%

Total Interest

$254.72

Total amount (interest plus principal)

$2,254.72

Effective annual rate (EAR)

12.74%

Who can qualify for a low-interest credit card?

To qualify for a low-interest credit card you must meet the following qualifying criteria:

  • Over 18 years of age
  • Australian citizen or permanent resident
  • Have a good credit rating
  • Not bankrupt
How to qualify for a loan in Australia

How to apply for a low-interest credit card

Low-interest credit cards are offered by a variety of different banks and lenders in Australia such as:

  • Westpac
  • ANZ
  • NAB
  • Bank of Melbourne
  • Bendigo bank
  • Virgin money
  • St George
  • BankSA

The first step toward getting a low-interest credit card is completing an application form. A crucial part of the application process is showing that you have enough income and assets to pay back the credit limit.

You’ll be asked to provide proof of the following:

  • Income
  • Employment details
  • Assets and liabilities
  • Expenses

Some credit cards are approved almost instantly. After you have submitted your details, the card provider will give you a response within 60 seconds of applying. Alternatively, the lender may ask for additional information before approving your application.

What are the rates?

Low-interest credit card rates can range between 7.49% and 13.99%, which is significantly lower than other cards. Choosing a card with a low interest rate may help you save money in the long-run, especially if you can only make the minimum repayments.

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What is the maximum credit limit?

Low-interest credit cards have a minimum credit amount of $500, and a maximum credit limit of $100,000. The amount of credit that you can access from a lender is determined by your:

  • Income
  • Credit score
  • Overall financial health

Credit limits vary from card to card, with platinum and black cards offering the highest limits with the most amount of fees and benefits.

Low-interest credit card minimum and maximum limits

Minimum LimitMaximum Limit

$500

$100,000

Top 3 uses for a low-interest credit card

Here are three reasons why people choose a low-interest credit card.

Balance transfer

Some people choose a low-interest credit card for its balance transfer feature. You can transfer your existing credit card balance to a new card that supports a lengthy interest-free period. Some cards offer 0% balance transfer up to a maximum of 18 months, which can save you on interest payments if you have a balance owing on your credit card.

Something to keep in mind with balance transfers is the balance transfer revert rate, which can be significantly higher than the standard purchase rate. The card will automatically revert to this higher rate after a certain number of months have passed.

Travel insurance

Some credit cards come bundled with travel insurance. This insurance will cover you for a variety of travel situations such as:

  • A medical or dental emergency
  • Repatriation
  • Lost or stolen luggage
  • Legal liability
  • Trip cancellations

Picking a card with travel insurance may save you money and give you peace of mind if you travel frequently. In most cases, the travel insurance will cover you for international travel only, and not domestic trips within Australia.

Low-rate, low-fee card

Some people choose low-interest cards for cheaper interest payments and low annual fees. Low-interest cards are generally easier to understand than those that have more features, which makes them suitable for people who are new to paying with credit or for those who just want an easy to understand option.

Summary

Low-interest credit cards have low purchase rates and low fees, and often do not come with a rewards structure. A low-interest card can be useful if you are planning to only use the card for purchases, and are able to repay the borrowed amount in full each month. They are not designed to be used for cash advance withdrawals.

In summary, low-interest credit cards:

  • Have a low purchase rate
  • Have a higher cash advance rate
  • Charge compounding interest daily
  • Can be repaid early, and in full, to avoid interest
  • Often do not come with any rewards scheme
  • Often include a range of insurance and protection benefits

Low-Interest Credit Card FAQ

Is 0% APR low interest?

Some cards offer 0% APR as an introductory offer. The 0% rate can apply to purchases, balance transfers, or both. You’ll still need to make the minimum payments due on your statement to qualify for 0% APR, and if you don’t you may be charged a penalty rate that is significantly higher than the purchase rate.

Do low interest rates only apply to purchases?

The interest rate applies to purchases only and does not include services such as a cash advance or balance transfer.

What is the minimum payment on a low-interest rate credit card?

The minimum repayments vary between lenders and range from 2.5% to 3% of the balance owing.

Are low-interest credit cards the cheapest option?

Low-interest credit cards offer some of the lowest purchase rates, but there may be other fees and charges that make them more expensive. There may be fees for late payment, annual fees, and other penalties.

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

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