What you need to know about low interest credit cards

Canadian credit cards are notorious for charging outrageous amounts of interest. Charges can range from 1.5% to 2.5% per month, or 18% to 30% per year. Most cards charge between 20% and 25% annually.

That is a lot to pay, so many folks go a different route, taking out credit cards that specifically have lower interest rates. The rates charged on these cards are more often in the 8% to 12% range – a big improvement compared to a regular credit card.

Here’s what you need to know about these low interest credit cards:

No rewards

Many credit cards offer rewards, which usually come in the form of a credit on the statement or points. If somebody spends a lot of money on a card, these rewards can be quite lucrative.

Credit cards specifically marketed as having a lower interest rate usually don’t have any rewards attached. And if a card does offer some sort of reward, it’ll barely be worth mentioning. That’s because the low interest rate itself is the reward.

For somebody with $5,000 in credit card debt, moving from a 24% interest rate to the 7.99% Scotia Momentum No-Fee Visa offered on our credit cards page can save more than $800 per year. This card also offers 1% cash back on gas and grocery purchases.

But remember, the 7.99% rate is just an introductory rate. After six months the interest rate goes back up to 19.99%.

Read the fine print

Many regular credit cards offer low introductory interest rates and then charge more after six months or a year. This isn’t so bad if a borrower knows about it.

But many times a borrower doesn’t bother to read the fine print and assumes the low rate will persist for the life of the card. This can cause a nasty surprise at the end of the intro period.

And remember, no credit card company is required to maintain a low rate on their card. They can (and do) change the rules, sometimes without much notice at all.

Better credit score

Banks frequently require somebody to have a very good credit score when applying for a low-interest rate credit card.

The logic goes something like this:

If somebody is applying for such a card, chances are they either already have a balance or plan to have one. If somebody paid back the card each month, they’d get one with better rewards. Thus, borrowers like that are perceived to be a slightly higher credit risk.

People with existing credit card debt are a higher risk than somebody who doesn’t have any. Thus, don’t expect to be approved for a low interest rate credit card with crummy credit.

Some lenders adjust the rate charged to borrowers based on their credit, while others charge everyone the same rate. Again, it’s best to read the fine print before you apply.

Can low interest credit cards work for you?

Low interest credit cards have a number of advantages, and they can be useful for someone who has a balance today or may have one in the future.

But they also have their downfalls, including costing more than other sources of debt, a lack of rewards, and there’s no guarantee the rate will stay low. Overall, however, they can be useful products if used properly in your overall financial plan.