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

There are two types of low interest credit card: low purchases rate and life of balance transfer.

On rare occasions, one card manages to offer both at once but, in general, those looking for the lowest interest rate credit card need to decide whether they're looking to pay a low rate on any spending balances carried over from month to month or whether they'd rather make it easier to pay off credit card debts elsewhere which are currently accruing interest at a high rate.

Let's look at each type in turn before considering, in the last section, whether low rates are actually worthwhile: how much can they cost and, once you've got one, can the provider just increase it anyway?

Low interest rates for purchases

The low interest rate for purchases is an easy creature 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% so, by our measure, a low purchase rate is about 10%.

How low?

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

Risk-based re-pricing: most credit card providers are 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, which came into force in February 2011, just 51% of applicants must receive the interest rate as it's advertised.

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 in the past few months we've seen them offer more information about which of these two categories their interest rates fall into so 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.

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

More than low rates

Many cards offer rewards as well as low purchase interest rates, most often in the form of a points scheme.

However, most high-value credit card rewards come with high interest rates.

In addition, they all offer the protection under law (section 75) which is available to all credit cardholders.

Low interest rates for balance transfers

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

Again, anything under 10% constitues a low rate.

That's considerably lower than the interest rate the average credit card charges for balance transfers - 19-20% - but significantly higher than the rate we usually think of when it comes to balance transfers: 0%.

How low?

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': many balance transfer deals are offering 'special rates'. That is, they're an offer that applicants either receive as advertised or not at all.

However, even balance transfers have fallen prey to the 'rate for risk' trend we discussed above.

Most providers will specify whether they operate a risk-based re-pricing policy in the summary box on application, however. 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.

Finally, 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.

Since, in that case, the low or 0% rate still only lasts for a limited period it's becoming more worthwhile than ever to compare low interest rate deals.

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

Transfer fees: in addition, those considering moving a balance to a low interest rate should consider that there is sometimes a fee charged for that transaction.

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 so are they worthwhile at all?

Beat most other 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 the lowest interest rate credit cards available are the ones offering 0% on purchases and balance transfers.

Low rates vs. 0% rates

0% purchases credit card might only offer their limited 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 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 how much does more hassle with a short-term 0% deal save?

In the case of balance transfers, it's a lengthy subject so we've covered this in more detail in our article on 0% or life of balance transfer, but as you can see below, it does save a significant amount although bear in mind that the example below includes a conservative balance transfer fee.

Most low interest rates deals' transfer fees are lower or free.

	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	£261 (repaying £265 per month)	£0 (repaying £260 per month)
Total cost	£361	£150

It's also worth bearing in mind that 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 on-going 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 that people expect. Those interest rates can be deceptive.

	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, while the savings offered with 0% deals are compelling these examples don't necessary reflect how a deal might be used in practice.

In terms of long-term usefulness, too, 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: the crisis made lenders much more risk-averse.

However, 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 an 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.

All in all, though, the chance of the rate increasing is fairly small: worth knowing about but, for the vast majority, not worth worrying about.

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