What is a low-interest credit card & how does it work?

Sometimes, less is more. And having a credit card with a low interest rate (annual percentage rate, or APR) is a perfect example. 

If you carry a balance on your card each month, a low-interest credit card will charge less interest on it—and can help save you money in the long run.

What you’ll learn:

• A low-interest credit card is typically one with a rate that’s lower than the national average.

• Introductory rates, such as 0% intro APRs, are for a limited time only and not the same as low-interest credit cards.

• Qualifying for a credit card with a low interest rate depends on your credit scores. Generally, good to excellent credit scores get the lowest credit card interest rate offers. 

• In addition to the interest rate, you may also want to consider annual fees and rewards when choosing the right card for you.

A credit card is typically considered a low-interest card when its annual percentage rate (APR) falls below the national average. The Federal Reserve determines the national average every quarter.

Your credit card’s interest rate might be higher or lower than the national average for numerous reasons. For example, you may have a lower interest rate if you have great credit scores and a strong credit history.

A low-interest credit card is not the same as a low intro APR credit card. Some credit card issuers offer cards with low interest—or sometimes 0% APR—for a limited time as an incentive for opening the account. But once the intro period is over, the regular APR will apply.

A low-interest credit card works the same as any other credit card, provided you pay off your balance in full every month. But if you carry a balance, a low-interest card could save you money in the long run since you’ll pay less in interest than you would if your card had a higher APR.

When you’re choosing a credit card, you may be tempted to focus solely on APR. But you’ll want to review all the terms and benefits of the card you’re considering to make sure it’s the right one for you.

In addition to comparing APRs, here are a few more things you may want to factor into your decision:

• Annual fees: A low-interest credit card doesn’t necessarily mean a low annual fee. In some cases, you can have the best of both worlds and find a card with both a low interest rate and a low annual fee—or no annual fee at all.

• Rewards: Earning cash back, miles or other rewards for your purchases may be more important to you than a low APR—especially if you rarely carry a balance on your card.

• Balance transfer costs: Consider a balance transfer credit card offer that not only has a lower interest rate but also has a low—or no—balance transfer fee. A balance transfer moves the amount you owe on one credit card to a new card from a different issuer. If you transfer a credit card balance to a new card with a lower APR, you can potentially save money on interest.

If you’re looking to open a low-interest credit card, the following steps can help you find the right card for your needs and may increase your chances of getting approved:

Your credit history and credit scores can affect the APR you’re offered. And good to excellent credit scores potentially mean better credit card options with better terms—like lower interest rates. On the flip side, bad credit scores may limit your choices. 

Improving your credit scores, if needed, will give you the best chance of being approved for a low-interest card.

If you’re shopping for a low-interest credit card and want to narrow down your options, it might be helpful to see if you’re pre-approved. While pre-approval isn’t a guarantee you’ll be approved for a card, it means that you’ve met the basic qualifications to be considered for the card. Plus, pre-approval uses a soft credit check, so it won’t hurt your credit scores.

Low-interest cards may offer an intro APR, but they are best known for having lower rates than the national average after any introductory periods. Low-interest credit cards may save you money on interest payments if you carry a balance on your credit card. 

But before applying for a credit card, make sure you know your credit scores and take time to consider your spending habits as well as any annual fees you’ll pay and rewards you may want to earn.

If you’re ready to find the right card for you, you can start by comparing low-interest credit card offers from Capital One. You can also check to see whether you’re pre-approved before applying—without hurting your credit.