The interest rate is one of the most important features of a credit card. Your credit card interest rate influences how much you pay when you carry a balance and how long it takes you to pay off your balance. The interest rate, expressed as an APR or annual percentage rate, is the basis for calculating the monthly finance charges on balances you carry over from the previous month. Here’s why having a low interest rate credit card is so beneficial.

You Save Money on Interest

Perhaps the biggest benefit of having a low interest rate is the money you save on credit card interest. Low interest rates mean lower finance charges and less money paid to the credit card issuer when you carry a balance.

Sa,y for example, you have a low interest rate credit card with a 11.9% APR and a $500 balance. Your finance charge on this balance would be $4.95. With an additional $500 purchase, your balance increases to $1,000, and your finance rises to $9.92 finance charge.

At an interest rate of 21.9%, you’d pay $9.13 finance charge on a $500 balance and $18.25 on a $1,000 balance. Notice how the finance charge is almost double with the higher interest rate.

Keep in mind that you get nothing tangible for paying finance charges. You’re simply paying for the convenience of paying your credit card balance over time instead of all at once. If you’re going to take advantage of the option to make payments on your balance, a lower interest rate will allow you to save money.

You’ll Pay Your Balance Offer Sooner

A lower interest rate means you can pay off your balance sooner. More of your payment will be applied to the actual balance rather interest.

Here’s an example. Let’s say you can only afford to pay $50 toward your credit card balance, regardless of the interest rate. It will take you 23 months to pay off a balance of $1,000 at 11.9% APR with a total of $107.68 in interest paid.

At a higher rate of 21.9% APR, it will take you 26 months and $227 in interest to pay off the balance. You’d have to increase your payment to $90 a month to reduce your total interest paid to $105, about the amount of interest you’d pay at an 11.9% APR.

You’ll Have a Lower Minimum Required Payment

The minimum payment is the lowest amount you can pay on your credit card to remain in good standing. Pay less than the minimum means your payment will be considered late and you’ll have to pay late payment penalties.

Here’s how your interest rate affects your minimum payment. Some credit card issuers calculate the minimum payment as a percentage of the outstanding balance plus the finance charge on the balance. If your credit card issuer includes the finance charge in your minimum payment, a lower interest rate will translate to a lower minimum payment. On the other hand, a high interest rate would mean higher minimum payments.

Interest Rate Doesn’t Matter When You Pay in Full

Your credit card interest rate doesn’t matter if you pay off your credit card purchases each month. The credit card’s grace period will protect you from being charged interest. However, if you carry any balance, having a low interest rate will minimize the amount of interest you pay on your balance, allow you to pay off your balance sooner, and make the minimum payments more affordable.

When you’re shopping for a credit card, aim for those with lower interest rates. You’ll generally need good credit to qualify for a low interest rate credit card. Making your monthly payments on time is required to keep your low interest rate.

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