Fixed Vs Variable Rate
While you are comparing low interest credit card offers, the first thing that you have to find out is whether the rates are fixed or variable. Though most companies charge a fixed rate, but you can also receive offers for low variable rates. A variable rate credit card is the one where the interest rate depends on the prime rate in the market. It means the rate may go up or down depending upon the fluctuations in the prime rate. On the other hand, fixed rates do not change. It means even if the prime rate goes up, you will still be charged the low fixed rate you have been offered. However, the credit card agreement usually also explains certain exceptions when even the fixed rate can change. For example, missing a payment may result in a higher rate.
Multiple Interest Rates
You are also advised to review the different low interest credit card offers thoroughly and find out if the company is charging different rates for different categories. For example, it is very common for companies these days to charge one rate for cash advances while other for balance transfer and a different one for purchases. So, make sure you compare the rates in all the categories.
The Annual Percentage Rate (APR) For Purchases
Do not forget to compare the annual percentage rate charged by each card for purchases. You can go through the user agreement or other promotional materials published by the credit card companies to get detailed information about the same. Alternatively, you can also visit their official website to get details about how the different variables in the low interest credit card offers have been treated. If you are planning to use your card mainly to make payments for your purchases, the APR charged on purchases will obviously affect you the most. For example, if the Annual percentage rate is 12%, you will have to pay 1% of the total monthly outstanding balance in the form of interest every month. Even if a credit card is charging you a low rate on balance transfer and cash advance but a higher rate on purchases, it will definitely make no sense for you because it does not meet your specific requirements.
Fees For Balance Transfer And Cash Advance
In addition to the amount of interest, certain additional fees are usually also charged for balance transfer and cash advances. Therefore, in order to get a fair picture about the actual cost in these categories, you must compare those fees as well. It is not recommended to use a credit card to obtain easy cash advances because the rates and additional fee charged on credit card cash advances are usually very high. However, if you are not sure about it and are likely to use it for cash advances as well, you must compare the cost associated with the same thoroughly with each card. Besides that, it is also important for you to keep in mind that credit card balance transfer sometimes proves to be very helpful in managing your debts and finances. Therefore, you are advised to go for a card, where the interest rates for purchases as well as the balance transfer cost are considerably low.
It is also possible that a company is offering a very low interest credit card, but they charge a hefty amount of annual fee, which can increase the actual cost. Therefore, while you are comparing other variables, you should also pay special attention to the amount of annual fee charged by different companies. Sometimes, a credit card with comparatively a little higher rate may prove to be a better choice if it is charging very low or zero annual fee.
Maximum Credit Limit
It is very important for you to understand that a high credit limit plays a very important role in improving your FICO score. 15% of your credit score depends on the credit utilization ratio, which is also commonly termed as debt to credit ratio. It refers to the amount of debt you are acquiring against the total credit limit available to you. You will see significant increase in your credit score if you maintain this credit utilization ratio to somewhere between 10% and 40%. Therefore, even if you need a credit card to make small purchases, it is always wise to go for a low interest credit card that offers you a high credit limit, but without adding extra cost.
Circumstances When The Rates Can Be Increased
While you are reviewing the fine prints, you should also visit the section in the agreement that explains all those circumstances when the company can raise the interest rate on your credit card. Some common circumstances when the rates are increased include spending more than the available credit limit and making late payments. Compare how the rates are likely to increase in each offer. The best offer for you is obviously the one that gives you more flexibility and charges low penalty.
Rewards And Incentives
Sometimes, a credit card with a little higher rate may make more financial sense for you provided its reward and incentive programs allow you to avail high amount of discounts. Therefore, while you are comparing interest rates, you must weigh the value of incentives and rewards as well. For example, many cards offer cash-back bonuses and frequent flier miles.
Always remember, interest rate is not the only factor to determine the actual cost associated with a credit card; there are several other variables as well, which must be taken into account. Overall, if you do an apple-to-apple comparison while keeping the above things in mind, it will definitely become very easy for you to choose the best low interest credit card.