Low-interest Credit Cards are not always good especially if you don’t know why you are acquiring it. Besides, applying for every low-interest card that comes into your mailbox is probably the worst thing you can do to your credit score. Before we move on to why is it so, let’s understand what actually a low-interest card is.
Low-Interest Credit Card
It is a credit card with a lower interest rate or APR (Annual Percentage Rate) than other cards in the market. These rates usually range from 6% to 15%, depending on how creditworthy you are. Currently, there are three types of rates applicable to a credit card.
Introductory Interest Rates:
Most of the low-interest credit card’s offer that you receive falls in this category. Rates aren’t low for a lifetime, it’s temporary, say for 6 months or a year. The rates may increase unexpectedly if you miss out any payment.
Fixed Interest Rates:
There are cards with fixed rates. These rates aren’t affected by any external market conditions. Hence, even if the rates increase, people with fixed cards rates wouldn’t be affected.
Flexible Interest Rates:
The rates for such cards are determined by market conditions and the governing body. Hence, there can be an unexpected rise or fall in the rates. However, the change wouldn’t be radical.
There are various reasons why people avail low-interest credit cards. Some of them are:
- Meet their daily expenses
- Make a big purchase
- To transfer a high-interest balance
These cards, however, may prove to be a disaster if you don’t know for what purpose are you applying for. Look at some of the drawbacks of using low-interest credit cards.
- Very few out of many applications are approved. You may not get such a card if you don’t meet their eligibility criteria.
- You must have a credit score between good and excellent to avail of such a card. if you don’t have it, don’t bother to apply for it.
- Reduced interest rates are not for a longer period. In most cases, these are introductory offers for 6 to 12 months.
- If you don’t pay bills on time or miss out on any payments, the rates may hike radically, sometimes even greater than the prevailing rates.
Hence, don’t fall into the trap set by such companies. Apply for it only when you genuinely need a low-interest card, for genuine purposes.