Arguably the biggest cost of a credit card is the purchase rate. Cardholders who are looking to keep costs down, or always find themselves paying interest each statement period, may want to consider a low rate credit card instead. 

Whilst some credit cards focus on offering features including frequent flyer rewards, no annual fee or a 0% balance transfer, a low rate credit card can provide a “no frills” alternative to reduce the interest you pay on purchases.

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What is a low rate credit card?

A low rate credit card is one that charges a lower interest rate than the market average. The average credit card rate generally sits around 15-17 per cent - and this hasn't shifted too much in the last decade. 

The lowest rates on the market will vary depending on the lender, but Australians looking to keep costs down will typically aim for a credit card under 12 per cent.

With credit card interest rates typically ranging from around 8-25 per cent, choosing a low rate credit card under 24 per cent at a bare minimum could make a big difference to how high your monthly repayments are.

What are the different types of credit card interest?

If you are in the market for a low rate credit card, it’s important to understand the different types of interest rates that can be charged.

  • Purchase rate: This interest rate is charged when you make purchases using your credit card, including bills, groceries and other miscellaneous payments
  • Cash advance rate: This interest rate is charged when you withdraw cash from your credit card, purchase foreign currency or perform international money transfers
  • Promotional or introductory rate: This is the rate offered by a lender for a limited time, as a promotional offer, and usually reverts to a higher rate when the offer expires.
  • Balance transfer rate: Also known as a balance transfer fee, this is the interest rate that lenders will charge when you make a balance transfer from one credit card to another, usually to consolidate debt

How is credit card interest charged?

Credit card interest is charged daily, based on the amount of debt you owe. The amount of interest you may be charged depends on a range of factors, including:

  • Credit card type - Visa, Mastercard or American Express can carry varying interest rates and fees. 
  • Credit card purpose - Platinum cards, rewards credit cards, frequent flyer credit cards and travel credit cards may come with higher interest rates. This is because ongoing costs like this, and annual fees, help to pay for rewards programs, sign-up bonus points, complimentary insurances, like travel insurance, concierge services and more. 

However, if you pay off your debt in full every month, and do not withdraw cash with your card, you will not be charged interest. This is fundamentally the best way to avoid paying purchase rates or cash advance rates. 

Where things can get complex, is in the calculation of interest free periods. A mistake some cardholders make is assuming that their interest-free days start again for every new purchase made. It’s important to remember that your interest is charged according to your billing cycle, not from the first day you make a purchase on the credit card.

Example: How your days interest-free are calculated:

  1. Your credit card has an interest-free period of 55 days; and your billing cycle begins on April 1.
  2. You make a purchase with your credit card on April 10.
  3. The 55-day interest period for that purchase begins on April 1, not April 10.
  4. So your interest-free period is actually only 46 days.

How does a low rate credit card work?

If you only make minimum repayments on your card balance, don’t repay the debt during your interest-free period, or have an outstanding balance at the end of your billing cycle, the lender will charge you interest on your remaining debt.

Similar to a personal loan or a home loan, you are charged interest to pay for the cost of borrowing. However, unlike a personal loan or a home loan, you can avoid paying interest on your credit card by paying off your balance in full every month. 

You can also reduce the interest you are charged by choosing a credit card with a lower than average interest rate. This is where low rate credit cards can come in handy.

Is a low rate credit card the best option?

If you cannot pay off your credit card debt in full, a low rate credit card could be the best option for you. However, if you always clear your balance each statement period, you may be better off with a low fee credit card. 

Disciplined savers may find that card fees are the only ongoing cost charged to their card account. Choosing a card with no annual fee, or no foreign transaction fees, for example, can help to make your credit card more affordable.

Pros and cons of low rate credit cards

Here are some of the benefits and disadvantages of credit cards with low interest rates:Benefits of a low rate credit card

Benefits of a low rate credit card

  • Lower your interest repayments: A low interest rate means you will have lower monthly repayments than a higher rate card, which can lead to large savings
  • Reduce your debt: Transferring credit card debt to a low rate credit card can be an effective way to manage debt, especially if your card has a balance transfer offer. 

Disadvantages of a low rate credit card

  • Fewer perks: Low rate credit cards are usually “no frills” and have have fewer rewards and perks than higher rate cards.
  • Higher fees: Some low rate credit cards will generate returns for the lender through higher fees in other areas, such as balance transfer fees or high annual fees.

What to look out for with low rate credit cards

All credit cards come with various features, terms and conditions that you need to check before you decide to apply. You could have the lowest interest rate on the market, but if you're paying through the nose in fees, this may be redundant. 

Here are a few things to consider if you’re applying for a low rate credit card.

  • Check total cost: Check your card does not charge high fees in other areas that mean the total cost of the low rate credit card is more than one with a slightly higher rate. This includes annual fees, account-keeping fees, foreign transaction fees, late payment fees, fees charged for additional cardholders and more. 
  • Review special offers: Look at whether the low rate is standard, or whether they only offer the low rate for a short period of time, such as the first year, before reverting to a higher rate.
  • Are features or rewards offered?: Credit cards that offer rewards programs, insurance cover, and even balance transfer offers will typically come with higher ongoing costs. 
  • Minimum credit limit: The higher your credit limit, the higher amount of debt you are able to accrue on your card account, regardless of the interest charges. If you max out your card balance, even a low interest rate charge on this could see your debt snowball out of control. 
  • Be careful of rejection: Applying for a credit card, then being rejected due to a low credit score or low income will negatively impact your credit score and could impact your ability to get a credit card or other loan in the future.

To view a credit card's T&Cs, hop on to the card provider's website for more information. You can also read the cards Product Disclosure Statement online to learn more about potential ongoing costs, and any eligibility criteria for your application, or eligible purchases for rewards credit cards.

Frequently asked questions

Current Interest Rate

This is the current interest rate on your existing credit card.

Which credit card has the highest annual percentage rate?

The credit card market changes all the time, so the credit card with the highest annual percentage rate is also liable to change.

Keep in mind that credit card interest rates are expressed as a yearly rate, or annual percentage rate (APR). A low APR is generally good but also consider:

  • There can be different APR's for each feature of the card (e.g. purchases may have an APR of 14 per cent, while cash advances on same card could have an APR of 17 per cent.
  • Credit cards with a variable rate can change throughout the year, affecting your APR, so check the full details.
  • If you pay your balance in full every month, having the lowest APR is not as important as the other fees associated with the card. However, if you carry a balance from month to month, then you want the lowest APR possible.

How does credit card interest work?

Generally, when we talk about credit card interest, we mean the purchase interest rate, which is the interest charged on purchases you make with your credit card.

If you don’t pay your full balance each month (or even if you pay the minimum amount), you are charged interest on all the outstanding transactions and the remaining balance. However, interest is also charged on cash advances, balance transfers, special rate offers and, in some cases, even the fees charged by the company.

The interest rate can vary, depending on the credit card. Some have an interest-free period, otherwise you start paying interest from the day you make a purchase or from the day your monthly statement is issued. So avoid interest by paying the full amount promptly.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

How to calculate credit card interest

Credit card interest can quickly turn a manageable balance into unmovable debt. So being able to understand how interest rates translate into dollars is an important skill to acquire.

The common mistake people make is focusing on the credit card’s annual percentage rate (APR), which often sits between 15 and 20 per cent. While the APR does provide a rough idea of how much interest you’ll pay, it’s not entirely accurate.

This is because you actually accrue interest on your balance daily, not annually. So, you need to work out your daily periodic rate (DPR). To do this, divide your card’s APR by the number of days in a year (e.g. 16.9 per cent divided by 365, or 0.05 per cent). You can then apply this figure to the daily balance on your credit card.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

In addition to the interest rate, you may also be charged a cash advance fee. This could be a flat rate, or a percentage of your total cash advance. If you are considering a cash advance, make sure to add up how much it will cost you before committing.

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How do you cancel a credit card?

It’s important to cancel your old cards to avoid any additional fees. Unless you’re doing a balance transfer, you’ll need to pay the outstanding balance before you cancel your credit card. If you’ve opted for a card with reward points, make sure you redeem or transfer the points before you close your account. To avoid any bounced payments and save yourself an admin headache, redirect all your direct debits to a new card or account. Once you’ve done all the preparation, call your bank or credit card provider to get the cancellation underway. Once you receive a confirmation letter, destroy your card and make sure the numbers aren’t legible.

How to get a free credit card

There's no such thing as a free lunch. All credit cards come with associated costs when used to make purchases, even if it’s simply the cost of making repayments.

However, many lenders offer incentives for customers such as a $0 annual fee or 0 per cent interest on purchases during an introductory period. Additionally, paying off your balance in full during an interest-free period means you could only have to pay back the cost of purchases without interest. You could also be eligible for additional rewards such as cashback during that time, saving you more money.

How can I increase my credit card limit on my American Express card?

If you want to increase the credit limit on your American Express (AMEX) credit card, you will need to apply through the AMEX Online Services, or by calling the number on the back of your card. You may need to share personal information that the bank can use to assess whether the requested limit is suitable for you and your current financial status. Once your application is approved, your new limit will be ready for use within an hour.

How to increase my Commonwealth credit card limit?

Commonwealth Bank credit cards are extremely popular in Australia for everyday purchases and big ticket items alikers. A number of the card’s functions can be customised, depending on your needs and desires. If you wish to increase your Commonwealth credit card limit using the CommBank, you can usually do so on the app or via NetBank.

In the CommBank app, tap on the ‘Cards’ icon and choose your credit card. Then, click on ‘Credit Limit’ and select the ‘Increasing your limit’ option. If you don’t have the CommBank app, you can also increase your Commonwealth Bank credit card limit through NetBank. Simply log on and go to Settings, then click on ‘Product Requests’ and then choose ‘Credit Card Limit Changes’. 

Once the bank has received your application, they will review your account and payment history. Based on this assessment, your application will either be approved or denied. If approved, your new limit will be applied to your card instantly. 

While increasing your credit card limit may be an easy process, it’s important to remember that you should only request limits that you can manage. A high limit increases the risk of having a larger debt, even with cards that provide low-interest rate options. So, it’s important to think carefully and seek advice from people you trust before increasing your Commonwealth Bank credit card limit.