Guide to low interest rate credit cards

woman credit cards

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

But there's a reason 0% deals grab the headlines: isn't no interest always better than some interest?

There are two types of low interest credit card:

In this guide we'll look at each type in turn before considering, in the last section, whether low rates are actually worthwhile, considering that providers can change interest rates once cardholders are signed up (skip ahead to that last section here).

Low interest rates for purchases

The low interest rate for purchases is easy to spot: credit card providers must advertise the 'main interest rate', which is almost always the rate applied to purchases, most prominently.

The average advertised representative credit card APR is currently around 18%, with low purchase rate deals averaging around 6 to 10%.

Here are some currently available deals which more clearly show the range of available interest rates.

Sainsburys Nectar Low Rate credit card (Go to provider »)
sainsburys nectar low rate9.93% p.a. variable on purchases.
Representative example: When you spend £1,200 at a purchase rate of 9.93% p.a. (variable), your representative APR will be 9.9% APR (variable).
NatWest Clear Rate Platinum credit card (Go to provider »)
natwest clear rate platinum6.9% p.a. variable on purchases.
Plus a £24 annual fee.
Representative example: When you spend £1,200 at a purchase rate of 6.9% p.a. (variable), with a £24 annual fee, your representative APR will be 11.1% APR (variable).
Halifax Clarity credit card (Go to provider »)
halifax clarity18.95% p.a. variable on purchases.
Representative example: When you spend £1,200 at a purchase rate of 18.95% p.a. (variable), your representative APR will be 18.9% APR (variable).

Need to know

The representative interest rate comes with some small print, however.

Risk-based repricing: most credit card providers now 'rate for risk' which means that they offer applicants different rates based on their previous 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.

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.

As providers' policies on this have diverged over the last year we've seen them offer more information about which category their interest rate falls into.

It's well worth checking the summary box or other supporting information before making an application, particularly for those anticipating a set cost for their borrowing.

Fees: it's also worth noting that the APR represents the full cost of credit so that includes 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 the summary box before application but most low interest rate credit cards don't have a fee so, in general what you see is what you get.

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

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

Again though, recently we've been seeing more credit cards bringing cash interest rates in line with purchases, so it's always worth checking the details of each card.

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

Low interest rates for balance transfers

Balance transfer credit cards with a low rate are known as life of balance transfer credit cards.

A 6% to 10% APR is about average for these offers, as you can see below.

Balance TransferTransfer Fee
aa low rateAA Low Rate6.4% p.a. life of balance
No fee
Representative example: When you spend £1,200 at a purchase rate of 6.4% p.a. (variable), your representative APR will be 6.4% APR (variable).
bank of scotland low rateBank Of Scotland Low Rate6.45% p.a. life of balance
Representative example: When you spend £1,200 at a purchase rate of 6.45% p.a. (variable), your representative APR will be 6.4% APR (variable).
natwest clear rate platinumNatWest Clear Rate Platinum6.9% p.a. life of balance
No fee
Representative example: When you spend £1,200 at a purchase rate of 6.9% p.a. (variable), with a £24 annual fee, your representative APR will be 11.1% APR (variable).

That's considerably lower than the interest rate the average credit card charges for balance transfers but significantly higher than the rate we usually think of when it comes to balance transfers: 0%.

Need to know

Just as with low interest rates on purchases, life of balance transfers aren't quite as simple as they seem, however.

Not always 'special rates': most balance transfer deals are offering 'special rates'. That is, applicants either receive the rate advertised or their application for the card is rejected.

However, some providers treat low rates for balance transfers like normal interest rates, which means they can choose to reprice for risk as described above.

Most providers will specify whether they operate a risk-based repricing policy 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.

On the other hand, note that not even 0% balance transfer offers are immune from this small print.

In late November 2011, for example, Halifax announced that one of their most prominent 0% balance transfer cards would start offering varying periods of 0% to some applicants, so not all would receive the full advertised length.

In contrast, a life of balance transfer credit card's low interest rate always lasts until the debt transferred has been paid off in full.

Transfer fees: those considering moving a balance to a low interest rate should check for a transfer fee, an upfront payment for moving the balance.

This is generally lower than the fees 0% balance transfer cards charge, though, and many cards are completely transfer fee free.

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.

Low rates vs. 0% rates

0% purchase credit cards (guide 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, life of balance transfer deals 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.

However, low interest rate purchases credit cards are often less expensive 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.

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 bearing 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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