How to find the best low-interest MasterCard

Finding the best low-interest MasterCard can be a game-changer for managing your finances, especially if you want to minimize interest payments and maximize your savings. In today's financial landscape, credit cards are not just a convenience but a powerful tool for financial planning. With numerous options available, each offering unique features and benefits, it's crucial to understand what makes a low-interest MasterCard stand out and how to compare different cards effectively.

Whether you're planning to consolidate debt, make a significant purchase, or want a card that offers more affordable financing, this guide will walk you through the essential steps to identify the perfect low-interest MasterCard for your needs. We'll explore key factors such as interest rates, fees, rewards programs, and additional perks, helping you make an informed decision.

By the end of this guide, you'll be equipped with the knowledge to choose a card that saves you money and aligns with your financial goals. Let's dive in and discover how to find the best low-interest MasterCard that suits your lifestyle and helps you achieve your financial aspirations.

Understanding low-interest credit cards

Low-interest credit cards are designed to help cardholders manage their finances more effectively by reducing the interest charged on outstanding balances. Unlike standard credit cards that may carry higher interest rates, low-interest credit cards offer more affordable financing options, making them attractive for those who want to save money on interest payments.

What are low-interest credit cards?

Low-interest credit cards typically feature an annual percentage rate (APR) significantly lower than average. These cards can come with a fixed or variable interest rate, and some may offer introductory periods with even lower rates or 0% APR for a set timeframe. It makes them ideal for carrying an outstanding balance, consolidating debt, or financing large purchases over time.

How do low-interest credit cards work?

The primary benefit of low-interest credit cards is the reduced cost of borrowing.

1. Lower APR: The most defining feature is the low APR, which means you pay less interest than standard credit cards. This is particularly beneficial if you often carry a balance from month to month.

2. Introductory rates: Many low-interest credit cards offer an introductory 0% APR for a specified period, usually six to 18 months. It can temporarily relieve interest charges, allowing you to pay down debt faster or make large purchases without the immediate burden of interest.

3. Balance transfers: These cards often come with favourable terms for balance transfers, enabling you to move high-interest debt from other cards to your low-interest card. This can simplify your payments and reduce the total interest you pay.

4. Standard rates: After any introductory period, the APR will revert to the standard low rate specified in your card agreement. It’s important to understand this rate and ensure it remains competitive.

Key features to consider

Annual percentage rate (APR)

The APR is the most crucial feature of a low-interest credit card. It determines the interest you pay on your outstanding credit card balance. Look for a card with a consistently low APR, and understand how it compares to cards from other credit card companies.

Introductory APR offers

Many low-interest credit cards offer promotional 0% APR for a certain period. This feature can be highly beneficial for making large purchases or consolidating debt without incurring interest charges during the introductory period. Pay attention to the duration of this offer and the APR that applies after the introductory period ends.

Balance transfer terms

If you’re planning to transfer existing balances from higher-interest cards, consider the terms of balance transfers. Look for cards with a low or 0% balance transfer interest rate for an introductory period and check for any balance transfer fees, which are usually around 3-5% of the transferred amount.

Fees

Evaluate the card’s fee structure, including:

• Annual fees: Some low-interest cards may charge an annual fee, which can affect your overall savings.

• Balance transfer fees: These fees can reduce the benefits of transferring a balance to a lower-interest card.

• Late payment fees: Understand the penalties for late payments, as these can add up quickly.

• Foreign transaction fees: If you travel frequently, consider cards with no foreign transaction fees.

Credit limit

The credit limit is the maximum amount you can borrow on the card. Ensure the card offers a sufficient credit limit to meet your needs, especially if you plan to use it for large purchases or balance transfers.

Rewards and benefits

While low-interest credit cards are primarily focused on offering lower APRs, some also provide rewards programs. Consider whether the card offers:

• Cash back: Earn a percentage of your purchases back in cash.

• Points or miles: Accumulate points or miles that can be redeemed for travel, merchandise, or other rewards.

• Other perks: Travel insurance, purchase protection, extended warranties, and other perks.

Grace period

The grace period is the time you have to pay your credit card balance in full without incurring interest charges. A longer grace period gives you more time to pay off your balance without accruing interest.

Customer service and support

Good customer service can make a significant difference in your experience with a credit card. Look for a card issuer known for responsive and helpful customer support, as well as convenient online account management tools.

Additional features

Consider any additional features that might be important to you, such as:

• Security features: Fraud protection, zero-liability policies, and alerts for suspicious activity.

• Mobile app: Ease of managing your account through a mobile app.

• Introductory bonuses: Some cards may offer sign-up bonuses, although these are more common with rewards cards.

Types of low-interest credit cards

When searching for a low-interest credit card, it’s important to understand the types available, as each offers unique features tailored to various financial needs. Here are the main types of low-interest credit cards you can consider.

Standard low-interest credit cards

Standard low-interest credit cards have a consistently low APR for purchases, balance transfers, and sometimes cash advances. They are ideal for individuals who plan to carry a balance and want to minimize interest charges over the long term.

These cards typically do not have introductory periods or promotional rates but offer a stable low APR that helps you manage monthly payments more predictably. They may also provide basic rewards or cash back, making them a solid choice for everyday use.

Introductory 0% APR credit cards

Introductory 0% APR credit cards offer a 0% APR for an introductory period, usually six to 18 months. After the introductory period, the APR reverts to a standard low rate.

These cards are perfect for those who want to make a large purchase or consolidate debt without incurring interest charges during the promotional period.

However, it’s important to plan for the end of the introductory period to avoid surprises when the APR increases to the regular rate.

Balance transfer credit cards

Balance transfer credit cards are specifically designed for consolidating debt. They offer low or 0% APR on balance transfers for an introductory period, allowing you to transfer high-interest balances from other cards and save on interest payments.

This type of card simplifies your payments by consolidating multiple debts into one. Be mindful of balance transfer fees, which can apply, and ensure you understand the terms that follow the introductory period.

Credit union credit cards

Credit union credit cards often have lower fees and interest rates than traditional banks. Credit unions are member-focused and typically offer more personalized services and benefits. These cards can have lower APRs and more flexible approval criteria, making them an excellent choice for individuals seeking competitive rates and a more community-oriented banking experience.

Low-interest reward credit cards

Low-interest rewards credit cards combine the benefits of low interest rates with rewards programs. While they may not offer the lowest possible APR, they provide a balance between earning rewards and saving on interest. These cards can include cash back, points, or miles for purchases, and introductory APR offers. They are ideal for individuals who want to earn rewards while keeping interest costs low, providing a blend of financial benefits.

Pros and cons of low-interest credit cards

Low-interest credit cards can be a valuable financial tool, but like any financial product, they have advantages and disadvantages. Understanding these pros and cons can help determine whether a low-interest credit card is right for your financial situation.

Pros of a low-interest credit card

Lower interest costs

The primary advantage of low-interest credit cards is the reduced interest rates compared to standard credit cards. This means lower monthly payments and less interest payments over time, especially if you carry a balance.

Debt management

Low-interest credit cards can be particularly useful for managing and consolidating existing debt. By transferring high-interest balances to a low-interest card, you can simplify payments and reduce overall interest charges.

Affordable financing

Low-interest credit cards provide an affordable option for financing large purchases or unexpected expenses. With lower interest rates, you can spread out payments over time without incurring significant interest charges.

Introductory offers

Many low-interest credit cards have introductory offers, such as 0% APR for a specified period. These offers can be highly beneficial for making large purchases or consolidating debt without paying interest during the promotional period.

Flexible payment options

The lower interest rates give you more flexibility in managing your monthly budget. You can pay off balances gradually without the pressure of high interest accumulating quickly.

Cons of a low-interest credit card

Limited rewards

Low-interest credit cards often come with fewer rewards or benefits compared to rewards credit cards. If you value earning points, cash back, or other perks, you might find low-interest cards less appealing.

Credit score requirements

To qualify for the best low annual interest rate on your credit card, you generally need a good to excellent credit score. If your credit score is lower, you might not be eligible for the most attractive offers.

Balance transfer fees

While balance transfers can save you money on interest, they often come with fees, typically around 3-5% of the amount transferred. These fees can add up and reduce the overall savings from the lower interest rate.

Limited introductory periods

The 0% APR introductory periods are temporary. Once the promotional period ends, the APR will revert to the standard rate, which, while lower than average, still requires careful management to avoid accruing debt.

Potential for increased spending

The lower interest rates might encourage some cardholders to spend more than they can afford, leading to higher balances that still need to be paid off, albeit with less interest.

Low-interest credit card fees

When selecting a low-interest credit card, consider the various fees associated with the card. While the primary focus might be on the interest rate, understanding the fee structure can help you avoid unexpected costs and make the most of the credit card benefits.

Annual fees

Some low-interest credit cards charge an annual fee for card membership. This fee is billed once a year and can range from as low as $25 to several hundred dollars, depending on the card’s benefits. While some low-interest cards don't have an annual fee, others might charge a fee in exchange for additional perks or rewards. Consider whether the benefits you receive justify the annual fee or if a no-annual-fee card might be a better option.

Balance transfer fees

Balance transfer fees are charged when you move a balance from one credit card to another, often to take advantage of a lower interest rate. These fees are typically a percentage of the amount transferred, usually around 3-5%. For example, if you transfer a $5,000 balance with a 3% fee, you pay $150 in fees. Some cards offer promotional periods where balance transfer fees are reduced or waived, which can make transferring balances more cost-effective.

Late payment fees

Late payment fees are charged if you do not make at least the minimum payment by the due date. These fees can be as high as $40 and quickly add up if you miss multiple payments. Some credit cards offer a one-time late payment forgiveness. Pay on time to avoid these fees and potential negative impact on your credit score. Setting up automatic payments or reminders can help ensure you never miss a due date.

Foreign transaction fees

Foreign transaction fees are charged on purchases made outside your home country or with foreign merchants. These fees are typically around 1-3% of each transaction. If you travel frequently or make international purchases, look for a card that does not charge foreign transaction fees to save money on these transactions.

Cash advance fees

Cash advance fees are charged when you use your credit card to withdraw cash from an ATM or a bank. These fees are usually a percentage of the amount withdrawn, often around 3-5%. Additionally, cash advances frequently come with higher interest rates than regular purchases and typically start accruing interest immediately, with no grace period. Because of these high costs, it’s best to avoid cash advances whenever possible.

Over-limit fees

Over-the-limit fees are charged when your spending exceeds your credit limit. These fees can be around $25-$35. While many credit card issuers no longer charge over-the-limit fees due to regulatory changes, it’s still important to monitor your spending and stay within your credit limit to avoid potential penalties.

Returned payment fees

Returned payment fees are charged if a payment you make is returned by your bank, often due to insufficient funds. These fees can be similar to late payment fees, typically around $25-$40. Ensuring you have sufficient funds in your account when making payments can help you avoid these fees.

Additional fees

Other potential fees to be aware of include:

• Card replacement fees: Charged if you need a replacement card expedited.

• Statement copy fees: Charged for requesting additional copies of your statements.

• Payment convenience fees: Charged for making a payment over the phone or using an expedited payment service.

How low-interest credit cards help you save

Low-interest credit cards can be an effective tool for managing your finances and saving money in various ways. By reducing the interest you pay, these cards help you keep more of your hard-earned money.

Lower interest payments

The primary benefit of low-interest credit cards is the reduced interest rate on carried balances. Standard credit cards often have higher APRs, which can quickly increase the cost of borrowing.

By opting for a low-interest card, you can significantly reduce the amount of interest you pay on any balance you carry from month to month, allowing you to save money and pay off debt faster.

Cost-effective financing for large purchases

Low-interest credit cards can be a cost-effective way to finance large purchases. Whether you’re buying furniture and appliances or paying for a vacation, a lower interest rate means you’ll pay less in interest charges over time. This can make it easier to budget large expenses without incurring substantial interest costs.

Debt consolidation and balance transfers

Low-interest credit cards are often used to consolidate high-interest debt from multiple credit cards. By transferring balances from higher-interest cards to a low-interest card, you can save money on interest payments.

Some cards offer introductory 0% APR on balance transfers for a specified period, providing an even greater opportunity to save. Just be mindful of any balance transfer fees and plan to pay off the transferred balance before the introductory period ends.

Reduced monthly payments

Lower interest rates mean that a larger portion of your monthly payment goes toward paying down the principal balance rather than interest. This can help you reduce your debt more quickly and improve your overall financial health. Lower monthly payments also provide more flexibility in your budget, allowing you to allocate funds to other financial priorities.

Avoiding high-interest cash advances

While it’s generally best to avoid using credit cards for cash advances due to high fees and interest rates, a low-interest credit card can offer a more affordable option if you need quick access to cash. Some low-interest cards have lower cash advance APRs compared to standard cards, helping you save on interest charges if you find yourself in a pinch.

No or low annual fees

Some low-interest credit cards come with no annual fees, further increasing your savings. Even if a card does have a fee, the savings from the lower interest rate can often outweigh this cost, especially if you carry a balance regularly. Be sure to compare the total cost of the card, including any fees, to determine if the savings on interest justify the annual fee.

Better financial management

Using a low-interest credit card can encourage better financial habits and management. Knowing that you have a lower interest rate can reduce stress and help you focus on paying off your balance more quickly.

Additionally, many low-interest cards offer online tools and mobile apps to help you track your spending, set up payment reminders, and manage your account more effectively.

Understanding interest rates on credit cards

Interest rates on credit cards, often referred to as Annual Percentage Rates (APRs), determine the cost of borrowing money on the card. APRs can be fixed or variable, affecting how much interest accrues on balances carried from month to month. Understanding these rates and how credit card interest is calculated is crucial for managing debt effectively and minimizing interest expenses over time.

Average credit card interest rate in Canada

As of early 2024, the average credit card interest rate in Canada typically ranges from around 12% to 20% APR, depending on the type of card and the borrower's creditworthiness. This rate can vary based on economic conditions, credit card issuer policies, and individual credit profiles. Consumers can compare rates and terms to find the most suitable credit card for their financial needs and to manage debt effectively.

Types of interest rates: fixed and variable

Fixed interest rates

remain constant throughout your credit card account. The APR doesn't change regardless of economic shifts or adjustments by the credit card issuer. This stability offers predictability, as borrowers know how much interest they will pay each month. It's beneficial for those who prefer consistent payments and want to avoid surprises in their financial planning. Fixed rates are particularly suitable for individuals carrying balances over time who prioritize budgeting and financial stability.

Variable interest rates

Variable interest rates can fluctuate based on changes in a specified benchmark rate, such as the bank's prime rate. These rates are influenced by broader economic factors and can adjust periodically. Initially, variable rates might offer lower APRs than fixed rates, especially during low interest rates. This flexibility can result in savings for borrowers who pay off their balances quickly or are comfortable with fluctuating payments. However, variable rates can also increase if market interest rates rise, leading to higher monthly payments.

How interest is charged on a credit card

Interest on a credit card is charged monthly or yearly based on the balance carried from month to month, and the calculation method can significantly impact the amount you pay over time.

Daily balance method

Most credit cards use the daily balance method to calculate interest charges. This method computes interest based on the average daily balance for the billing cycle. Here’s how it works:

• Daily rate calculation: The APR is divided by 365 (or 360, depending on the issuer) to determine the daily periodic rate.

• Daily interest accrual: At the end of each day, the issuer calculates the interest accrued on the balance for that day using the daily rate.

• Billing cycle total: At the end of the billing cycle, the daily interest amounts are summed up to determine the total interest charged for the period.

Average daily balance method

Some credit cards use the average daily balance method instead of the daily balance method:

• Average daily balance calculation: The issuer adds up the balances for each day of the billing cycle and divides them by the number of days in the cycle.

• Monthly interest charge: The average daily balance is multiplied by the daily periodic rate and then by the number of days in the billing cycle to calculate the monthly interest charge.

Interest-free grace period

Many credit cards offer an interest-free grace period on purchases if the balance is paid in full by the due date. However, interest typically begins accruing immediately on cash advances and balance transfers, with no grace period.

Minimum payment calculation

Credit card statements typically include a minimum payment amount, which is a percentage of the balance or a fixed dollar amount. Paying only the minimum may not cover the interest accrued, leading to higher overall costs and longer repayment periods.

Variable APR

If you have a credit card with a variable APR, the interest rate can change based on fluctuations in the market index or other factors specified in the cardholder agreement. Changes in the APR can affect the amount of interest charged on your balance from one billing cycle to the next.

Applying for a low-interest MasterCard

Applying for a low-interest MasterCard involves several steps to ensure you find the right card that fits your financial needs.

Research and compare cards

Start by researching different low-interest MasterCard options available in the market. Look for cards that offer competitive APRs and terms that suit your financial situation. Compare factors such as introductory APR offers, balance transfer rates, annual fees, rewards programs, and other benefits.

Check your credit score

Before applying for a low-interest MasterCard, check your credit score. Your credit score plays a significant role in determining whether you qualify for the card and what APR you’ll receive. Generally, a higher credit score increases your chances of approval and the ability to negotiate your credit card interest.

Pre-qualification

Some credit card issuers offer pre-qualification tools on their websites. This allows you to see if you’re likely to be approved for a card without affecting your credit score through a hard inquiry. Pre-qualification can give you an idea of which cards you may qualify for based on your credit profile.

Gather documents

Before applying, gather necessary documents, such as identification (driver’s license, passport), proof of income (pay stubs, tax returns), and other financial information. Having these documents ready can streamline the application process.

Apply

Once you’ve chosen a low-interest MasterCard and are ready to apply, you can typically apply online through the issuer’s website. Alternatively, you can visit a local card issuer branch to apply in person. Fill out the application form accurately and completely.

Wait for approval

After submitting your application, the credit card issuer will review your application, credit history, and other relevant factors. This process can take anywhere from a few minutes to a few weeks, depending on the issuer’s procedures. If additional information is needed, the issuer may contact you for verification.

Review terms and conditions

If approved, carefully review the terms and conditions of the credit card agreement, including the APR, fees, grace period, rewards, and any special offers. Ensure you understand all terms before accepting the card.

Activate your card

Once approved, you’ll receive your low-interest MasterCard in the mail. Follow the issuer’s instructions to activate your card, typically by calling a toll-free number or activating online through the issuer’s website.

Credit score required for a low-interest credit card

The credit score required to qualify for a low-interest credit card can vary depending on the issuer and the specific card you're applying for. Generally, a higher credit score improves your chances of qualifying for a low interest rate. Eliminating credit card debt and ensuring there aren't missing credit card payments can help increase your score over time. Here’s a general guideline based on credit score ranges.

Excellent credit (750 and above)

Individuals with excellent credit scores typically qualify for the lowest APRs and best terms available on low-interest credit cards. Issuers may offer introductory 0% APR periods on purchases and balance transfers, along with competitive ongoing APRs.

Good credit (700-749)

Consumers with good credit scores generally qualify for low-interest credit cards, although the APR offered may be slightly higher than those offered to individuals with excellent credit. You may still qualify for promotional APR offers and favourable terms.

Fair credit (650-699)

Individuals with fair credit scores may qualify for low-interest credit cards, but the APR offered may be higher than for those with higher credit scores. Issuers may still offer competitive rates, especially if you have a strong credit history with minimal derogatory marks.

Poor credit (below 650)

If your credit score is below 650, you may find it challenging to qualify for a low-interest credit card. In this case, you may need to improve your credit score before applying for a low-interest card. Consider secured credit cards or credit-building products to improve your creditworthiness over time.

Get a low-interest KOHO card

Sign up for a KOHO Premium Prepaid MasterCard account and access exclusive services to help manage your money, earn cash back, and build strong financial skills. With free financial coaching, zero foreign exchange fees, and higher spending limits, you have more convenience in shopping confidently and building your credit with KOHO.

Whether you want a virtual credit card or a physical one for your wallet, you have options when spending money. A virtual credit card lets you make purchases from your mobile wallet. Our intuitive app keeps track of your spending and provides valuable insights on managing your money smarter, so you pay credit card debt on time and avoid interest charges. Sign up for overdraft coverage protection to give you an extra safety net during financial emergencies. You can also periodically get a copy of your free credit score to monitor your credit progress.

Explore our various plans for spending and saving to align with your financial goals. From earning cash back with the prepaid MasterCard to earning interest in your high-interest savings account, you can build a portfolio that matches your needs. We also have KOHO for businesses looking to securely manage their cash flow.