How they work
How much they cost
How to apply
Rates and credit limits
What are low-interest credit cards?
A low-interest credit card is a payment card featuring a low interest rate on purchases. They generally do not include a rewards scheme or other perks, and purchase rates start from 7.49%. The low interest rate does not apply when making a cash advance withdrawal.
How do they work?
A low-interest credit card can be used in stores and online, with a lender providing funds for the transaction. Each purchase on your card will accrue interest and you will be required to make a minimum payment at the end of each month to cover the interest and a percentage of the principal.
Most cards charge interest that compounds daily. Compounding interest increases your annual percentage rate (APR), which is the true amount you will pay on your credit card when adjusted for compounding interest and fees.
The minimum principal repayment is generally 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. You can use the compound interest calculator to learn more about how interest works.
For some low-interest cards, lenders may offer 55 days interest-free on purchases, which can further reduce interest payments.
How much does a low-interest credit card cost?
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. If you are wishing to avoid this cost entirely, you may wish to consider a no annual fee credit 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
You can expect to pay a significantly higher interest rate if you use your card to withdraw money at an ATM as a cash advance. In some cases, the cash advance rate is double the purchase rate.
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:
- Bank of Melbourne
- Bendigo bank
- Virgin money
- St George
The first step toward getting a low-interest credit card is completing an application form. A crucial part of the application process is demonstrating your ability to meet repayments, and you’ll be asked to provide the following:
- Personal details
- Valid I.D. - such as a driver licence or passport
- Employment details - including your employment status, employer contact details, salary information, and payslips to verify your income.
- Your tax file number
- Details of your assets - such as your home and motor vehicle
- Details of your current expenses and other loans you may have
Once you have submitted your form and details, the card provider will assess your application. Approval times vary between cards from a few minutes to a couple of weeks. The lender may also ask for additional information before approving your application.
What are the rates?
Low-interest credit card rates usually have a purchase rate between 7.49% and 13.99%, which is significantly lower than other cards.
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 average credit limit for low-interest cards is between $40,000 and $80,000. The amount of credit that you can access from a lender is determined by your:
- Credit score
- Overall financial health
Low-interest credit card limits
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Top 3 uses for a low-interest credit card
1. Low-rate, low-fee card
Low-interest credit cards offer access to credit with minimal interest and low annual fees. As these cards generally do not have a reward scheme or other perks, they are often used by individuals who want a simple credit card for purchases while reducing interest payments and fees.
2. Balance transfer
You may find low-interest credit cards that allow a balance transfer. This feature allows you to transfer your existing credit card balance to a new card with an introductory interest-free period. Some cards offer 0% interest balance transfers up to a maximum of 18 months, which allow you to repay your existing debt without accruing further interest.
At the end of the introductory period, the card will revert to a standard rate, which can be significantly higher than the standard purchase rate. Ideally, a balance transfer should only be used if you are planning to repay the existing amount in full within the introductory period.
3. Travel insurance
While low-interest credit cards often do not have a rewards scheme, many credit cards will include some form of travel insurance. This insurance will provide cover for:
- A medical or dental emergency
- Lost or stolen luggage
- Legal liability
- Trip cancellations
Picking a card with travel insurance can offer peace of mind if you travel frequently. In most cases, travel insurance will only cover international travel, and not domestic travel within Australia. If you plan to use your card to regularly pay for travel, you may wish to consider a frequent flyer credit card.
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
Do low interest rates only apply to purchases?
Low-interest cards will often include a lower purchase rate. This reduced interest rate does not apply to cash advance withdrawals. If you are choosing a card with a balance transfer, you will need to be aware of the introductory rate, and the revert rate for transfer amounts.
How to compare low-interest credit cards
The low-interest card you choose will need to be suitable for your personal circumstances, financial profile, and spending habits. Read our guide if you’d like to know how to compare credit cards.
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.