Low Interest Rate Credit Cards and How They Differ

With the prime rates as low as they are right now, low interest rate credit cards aren’t hard to find when shopping online. The trick though, is being able to separate the best credit cards from the best looking credit cards. Card issuers figured out a long time ago that they could sell more credit cards, with higher rates and fees, by simply attaching rewards programs to their cards. In all fairness, if the right customer finds the right rewards card, and uses the card wisely, rewards cards can be very beneficial.

When shopping for low interest rate cards online, you will usually find these cards listed in the “regular cards” or “lowest rate” section of the website. If you pay attention to the order that the cards are listed, you will notice that the higher rate credit cards are displayed first. Credit card issuers and venders do this is because these cards are easier to qualify for, which results in higher sales.

Always take time to scroll to the end of each category; chances are you will find better deals the deeper you look. Assuming that you have good credit and qualifying isn’t an issue, you should begin you research with the lesser known bank issuers like Pulaski or IberiaBank. These banks have much smaller advertising budgets than the lager credit card issuers which they tend to pass along in the form of lower rates and fees.

The smaller banks are usually a little more skeptical about whom they approve, sometimes even requiring applicants to produce supporting documents for income and assets. Due to the fact that they are finicky about whom they approve, they have a lower default rate, which in turn allows them to offer the better rates. The larger banks, Citi, Bank of America, Chase, American Express and Discover have slightly higher rates, but a more forgiving approval process.

Comparing low interest rate credit cards is trickier than you think. The real trick to getting your best deal is to look beyond the low rate to determine how they arrived at that rate. There are three different classes of low interest rate cards, each having a different method of determining the rate.

The first class of credit cards will have an interest rate that is determined by the “rate plus the margin” formula. The rate is determined by the national prime rate that is posted in the Wall Street Journal, and the margin is the amount that is added to that rate. For example, assuming that the “prime rate” is 3% and your approval is “prime plus 1%”, you would have a 4% interest rate. The “1%” will always be constant, but your interest rate will fluctuate with the national prime rate.

The APR for purchases and balance transfers varies according to the applicant's credit history. Meaning, the card approval can be, prime plus 1%, prime plus 2% and so on. The card that you see offered with an interest rate of prime plus 1% could end up being prime plus 5% after the card is approved. Naturally, the credit card issuer will tell you about the rate change when you are approved then give you a chance to accept or decline the counter offer.

Another class of credit cards will offer their low interest rates via a flat rate system, not to be confused with a fixed rate offer. A flat rate credit card offers one low rate without any details of how they arrived at the rate. Their approval process basically says “your rate will be xxx if you have excellent credit, xxx if you have average credit and xxx if you have lower than average credit. The catch is you have to fill out the application to see which rate you qualify for.

The flat rate card is less fluid than the “prime plus” credit cards because they do not fluctuate monthly with the market. However these cards WILL adjust when the market worsens over an extended period of time. The problem is, when they adjust, there isn’t a rhyme or reason; the adjustment is entirely at the issuer’s discretion.

All credit cards have a clause that basically says; “we can change anything we like, at anytime we like, for whatever reason we like, and you are powerless to stop us.” At Direct Banc, it’s our experience that when the “flat rate” credit cards adjust, they usually adjust to a higher rate than the prime plus cards.

The last class of low interest rate credit cards is the fixed rate cards. Their interest rates tend to be slightly higher than the first two classes, but for those who carry a balance from month to month, they are usually a better deal. Be careful that you read the fine print, some cards will only apply the fixed rate to balance transfers, new purchases or for specific time periods. Just remember, as with the first two card classes, the card issuer can change the fixed rate anytime they please..