When to Use a Low-Interest-Rate Credit Card

A low-interest-rate credit card offers an annual percentage rate (APR) that’s substantially less than the rate on a standard credit card. For many Canadians, a lower interest rate can result in cheaper monthly payments and more savings over time.   

Learn how low-interest-rate credit cards in Canada can support your financial goals.    

You carry a balance 

If you tend to carry a balance on your credit card, you may want to consider getting a low-interest credit card.   

Interest is the cost you pay to borrow money. It’s usually a certain percentage of the amount that you borrow. If you don’t pay your credit card bill in full at the end of the month, you’ll owe interest on the amount you haven’t paid off yet. 

The interest rate is based on the card’s APR. With a regular credit card, you might have an APR of 20%. With a low-interest credit card, the APR may be 13%, for example. A low-interest business credit card may have an even lower APR, potentially just a few points higher than the bank’s prime lending rate. That discount on interest can result in considerable savings over time.  

You want to transfer a credit card balance to a new card 

If you have high-interest debt and want to lower your monthly payments, you may benefit from a balance transfer.  

In a balance transfer, you move debt from one or multiple high-interest credit cards to a card that offers a lower interest rate. While you may transfer your high-interest debt to a card with a permanent low interest rate, many people choose to transfer balances to a card that offers a very low or 0% introductory rate. The goal is to pay as much of your balance as possible during the introductory period, which typically ranges from ​​six to 18 months. After that, the APR for these cards rises to a more typical rate, such as 20%.  

The more you can pay off during the introductory period, the more you can save on interest.   

You need to make a big purchase 

Even if you typically pay your balance in full each month, a low-interest credit card can come in handy if you need to make a big purchase, especially if you run a small business.  

For instance, say you need to furnish a new office or buy an expensive piece of equipment. A low-interest business credit card can allow you to spread out your payments over time while paying less interest.  

Low-interest credit cards can also be helpful for individuals making a big purchase. For example, if you need to replace your refrigerator suddenly and don’t have time to save up for it, you might use a low-interest card to finance your purchase at a lower interest rate.  

Can you avoid paying interest? 

It is possible to avoid paying interest on your credit card altogether. Federally regulated financial institutions, like big banks, are required to give you a grace period of at least 21 days.1  

The grace period is the time between the end of your credit card billing cycle and when your payment is due. Some people think of it as an interest-free loan. For example, if you have to make a big purchase in the middle of the month, but you don’t get paid until the end of the month, you can use your credit card to buy the item when you need it and then pay it off a couple of weeks later without being charged interest. Just double-check your billing date to make sure you’ll be able to pay off your card before the grace period ends.  

However, not everyone can pay their full balance every month, especially when making large purchases. A low-interest credit card can help reduce the amount of interest you’ll have to pay on the balance you carry over to the following billing cycle. 

Using low-interest-rate credit cards strategically may help you save 

Whether you regularly carry a balance on your credit card or only do so when you make a large purchase, a low-interest-rate credit card can be a smart financial tool. By reducing the amount of interest you owe, you can better manage your monthly payments, giving you more room in your budget to pursue your financial goals.   

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