What Is A Low Interest Credit Card?

If you're looking for a low interest credit card UK companies have a lot to offer. If you shop around and compare credit card rates carefully, you can find credit card offers with introductory rates as low as 2-3%, and typical APR after the introductory rate in the single digits. How exactly do all those numbers apply to your credit card? Let's break it down a little and make it simpler to understand.

APR stands for annual percentage rate. That rate applies to interest, a charge that you pay the credit card company because you are, in essence, borrowing money from them to pay for your purchases. Since you're borrowing money, you pay interest just as you would if you borrowed money from a bank - except usually at far higher rates. In general, you can take out a loan at a high street bank for about 6-8% APR. Even a low interest credit card generally charges 12% and up APR. If you apply for a bad credit credit card, you could pay as high as 23-29% APR. Why the difference?

You're paying for the convenience. Having a credit card is like having a pre-approved loan that you can use any time you want, without having to apply for every single purchase. The credit card UK company approves you for a credit limit - the most that you're allowed to owe them at one time - and you can charge up to that amount - but that convenience comes at a price. If you charge £500 at 12% interest, you'll pay £72 per year if you carry a full £500 balance.

You're also paying for the risk that you won't pay off your credit card balance. When you apply for a credit card in the UK, the credit card company runs a credit check on you to see what your history of paying bills is. If you have been paying bills for a while, and always pay your bills on time, your credit report will tell the finance company that you're a ?good credit risk'. Because you've already shown that you can handle money and pay bills on time, they can expect that you'll pay your account with them the same way. Since you're a good credit risk, they'll be willing to offer you very favorable terms on a low interest credit card.

If, on the other hand, your credit record shows that you don't always pay your bills on time, or don't pay them at all, you'll be classified as a poor credit risk, and your chances of being offered a low interest credit card are pretty slim. Because credit card decisions are ?risk based', the worse your credit report is, the higher the rate of interest you'll be offered on a credit card. If your credit is really bad, you may not be able to get a credit card at all without paying a security deposit for the company to hold. If you've only been late with a payment once or twice - and it was a while ago, you may still qualify for a the lowest interest credit card UK companies offer.

Finally, if you have no status credit because you're just starting out, have never had bills or accounts in your name, or have never borrowed money, the credit card company has no way to assess the risk of letting you use their money to buy things. You may have to muddle along with a mid-range interest credit card for a year or two to prove yourself a good credit risk before you can qualify for a low interest credit card. UK lenders are no different than lenders in all parts of the world that way - until you prove yourself, you're a high risk borrower.

You can, however, shop around for a low interest credit card no matter your credit history. Don't just assume that you'll be rejected, especially if your credit score is low because you have none established. Some credit card UK companies are more willing to risk a new customer than others. If you're a student, for instance, you may qualify for some excellent credit card offers from many companies.

You can compare credit cards online at moneyeverything.com, where you'll find information about credit cards, loans, low interest credit cards and nearly anything else that has to do with money.