Best Low Interest Credit Cards in Canada for June 2023
What You Should Know
- Low interest rate cards typically have an interest rate around 12.99%.
- Many have a promotional balance transfer rate between 0% to 2.99%.
- They tend to have an annual fee from $0 to $29, with the first year waived.
- There are few additional benefits as you would see with a travel credit card.
A low interest credit card will save you significant amounts if you keep a long-term credit card balance. This is because most credit cards have an APR of around 19.99%, while low-interest cards range around 12.99%. In addition, many of these cards have promotional balance transfer periods with interest rates of 0% to 2.99% for 6 to 12 months.
As Canadian credit liabilities rise with the cost of living increases, there's no shame in keeping a balance. However, ensure you use a low interest source of debt to avoid overpaying on interest. One way to do this is using a low-interest credit card. If you want to save money on your credit card payments, continue reading to become an expert.
Total Household Credit Card Liabilities in Canada
In Millions, Seasonally Adjusted
Source: Statistics Canada
RBC Low Interest Credit Card
RBC Visa Classic Low Rate Option
- Save 3¢/L on fuel at Petro-Canada
- Earn 50 Rexall Be Well points on eligible purchases
- 3-month complimentary DoorDash subscription
RBC RateAdvantage Visa
- Save 3¢/L on fuel at Petro-Canada
- Earn 50 Rexall Be Well points on eligible purchases
- 3-month complimentary DoorDash subscription
- Extended warranty and purchase security insurance
CIBC Low Interest Credit Card
CIBC Select Visa Card
- Common carrier insurance
TD Low Interest Credit Card
TD Emerald Flex Rate Visa Card
- Earn 50% more Stars at participating Starbucks stores
BMO Low Interest Credit Card
BMO Preferred Rate Mastercard
- Extended warranty and purchase security insurance
- Global 24/7 emergency support
Scotiabank Low Interest Credit Card
Scotiabank Value Visa Card
- Save up to 25% at participating AVIS and Budget locations in North America
Capital One Low Interest Credit Card
Capital One Low Rate Guaranteed Mastercard
Savings From a Low Interest Credit Card
APR of Various Credit Card Types
If you carry a balance on your credit card from month to month, a low interest credit card can help you save money on finance charges.
With a typical credit card, you'll pay an annual percentage rate (APR) of about 19.99%. A $2,500 balance, works out to $464.66 in finance charges over 12 months if making minimum payments. But if you get a low-interest credit card with an APR of 12.99%, you'll only pay $292.59 in finance charges – a savings of $172.07.
Of course, the most significant way to save money is to pay your balance in full every month, so you don't pay any interest. But a low interest credit card can help you save if you need to carry a balance. The preceding graph compares the cost of borrowing from different lending products.
How to Lower the Rate on Your Credit Card
Option One: Ask For a Lower Rate
Sometimes, your existing provider may reduce your rate if you call them. This works best if you have been a customer for a long time and if you have always made your payments on time. Although it’s rare, many have experienced success in reducing their interest rates by multiple percentage points. You must have been a great customer with an exceptional credit score.
How to negotiate lower credit card interest rate
If you're looking for a low interest credit card, you may be able to negotiate a lower interest rate with your current credit card company. Here are a few tips to get started:
- Know your credit score: This will help you understand what interest rate you qualify for.
- Contact your credit card company: Ask to speak to a representative about lowering your interest rate.
- Be prepared: Explain why you're requesting a lower interest rate, such as a recent change in your financial situation.
- Discuss: Ask what the company can do to lower your interest rate and be prepared to compromise.
- If the company won't budge: Consider switching to a new credit card with a lower interest rate.
Option Two: Switch Cards
Transfer your balance to a low interest credit card. This can be a great way to save money on interest, but make sure you read the fine print before doing this. Some credit cards will charge a balance transfer fee, and you will want to ensure that the interest rate on the new card is lower than the interest rate on your old card.
Calculating Credit Card Interest
To calculate the interest you will pay on your credit card balance you need to know two things:
- Your APR: The annual percentage rate charged on unpaid balances. It's shown in your cardholder agreement and typically ranges from 12.99% to 23.99%.
- Your average daily balance: The sum of all your daily balances divided by the number of days in the billing period.
To calculate your interest charges, you need to multiply your average daily balance by the number of days in the billing period and then multiply that by your APR.
For example, let's say you have a credit card with an APR of 19.99%. Your average daily balance is $1,000, and the billing period is 30 days. To calculate your interest charges, you would multiply $1,000 by (0.1999/12) to get $16.66 in interest charges.
You can use this same formula to calculate the interest you will pay on any loan, including personal, student, and auto loans.
Additional Considerations
Aside from comparing credit cards based on the interest rate, you may want to consider the following factors to empower your decision.
Annual Fee
Some credit cards have an annual fee, while others do not. If you are switching to a low interest rate card with an annual fee, you’ll want to make sure the fee doesn’t counteract your interest rate savings. However, many cards offering a yearly fee may even waive it in the first year. This means you could transfer to the lower rate card and close it before you’re required to pay an annual fee.
Annual Fee of Low Interest Rate Cards
APR of Various Credit Card Types
*First Year Free
Promotional Rate
Some credit cards offer a promotional interest rate for a certain period. For example, you may get 0% interest on balance transfers for the first ten months. After the promotional period, the interest rate will return to the regular rate. However, you may be charged a balance transfer fee. This fee is usually around 1% to 3% of your transfer amount.
Visualizing Promotional Rates
Monthly APRs of Low Interest Rate Cards. Variable Rate Cards Excluded
Fixed Vs. Variable Rate
Some low interest credit cards have a fixed interest rate, while others have a variable interest rate. A fixed interest rate means that the interest rate will not change, even if the prime rate changes. A variable interest rate means that the interest rate will change if the prime rate changes. Variable rate cards have an interest rate range on top of the prime rate.
Unlike variable rate mortgages in Canada, your variable rate credit payment will change with the prime rate. This means an increase in interest rates will increase your required credit card payment.
Secured Vs. Unsecured
If you have a bad credit score, you may only be able to get low interest rates with a secured credit card. A secured credit card requires a security deposit, which is typically the same as your credit limit. For example, if you deposit $500 for your secured card, this will be your maximum limit. If you have a good credit score, you should be able to qualify for an unsecured card. Unsecured credit cards do not require a security deposit.
How to Avoid Paying Interest on Your Credit Card Balance
There are a few ways that you can avoid paying interest on your credit card balance:
- Pay your balance in full every month: This is the best way to avoid interest charges and will help you improve your credit score. If you can’t pay it off entirely, aim to pay it off as quickly as possible.
- Use a credit card with a 0% APR promotional rate: These offers are typically available for new credit card customers and can help save money on interest charges. However, the promotional rates range from 6 to 12 months. Afterwards, the interest rate will increase. It’s best to ensure you pay off the balance before the promotional period expires. Also, consider balance transfer fees that range from 1% to 3%.
What to do if you can't get a low interest credit card
If you have bad credit, you may not be able to get a low interest credit card. In this case, you can work on building your credit to be eligible in the future. In the meantime, you can get a low interest rate through a secured card. For example, the Capital One Low Rate Guaranteed Mastercard has an interest rate of 14.9% for balance transfers and purchases. This is reasonably lower than the standard rate of 19.99%.
Low Interest Credit Card Alternatives
If you struggle to pay off debt, a low interest credit card may not be the best option. You may want to consider a debt consolidation loan or a consumer proposal.
A debt consolidation loan is a personal loan with a lower interest rate than your credit cards. This can help you save money on interest and pay off your debt faster. Homeowners can leverage their home equity to receive lower interest rates. For example, you can pay off your credit card debt using a HELOC, second mortgage, or mortgage refinance. These options have lower interest rates than a low interest credit card.
A common strategy is beginning with a balance transfer to receive the lowest interest rates for a few months and then paying off the credit balance with one of these loans before the promotional period ends. This is because promotional rates have the lowest APR.
Another option is a consumer proposal, which is the legal process that allows you to negotiate with your creditors to reduce or eliminate your debt. Under a consumer proposal, you make monthly payments to a licensed insolvency trustee for up to five years. After the five years is up, any remaining debt is forgiven.
Bottom Line
A low interest credit card can save you money if you carry a balance on your credit card. To find the best low interest credit card for you, compare the interest rates and consider the annual fee and rewards program. No matter which type of credit card you choose, make sure you read the fine print and understand all the fees associated with the card. This will help you avoid any surprises down the road.