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7 Downsides of Low-Interest Credit Cards

The one thing that everyone hates about credit cards is paying high interest rates, which can be especially costly. There are credit cards offered with low interest rates that can appeal to cardholders who are frustrated by high interest charges each month. They may offer rates of 10% APR or even less, but it may come at a cost.

As with all credit products, it’s important to determine your needs first, then shop for the card that will best meet them. Here are seven reasons that a low-interest card may not be your best choice.

1. No Rewards

Credit cards without rewards will always have a lower interest rate than similar products that offer points, miles or cash back. So while the lower-interest card will make perfect sense for those who regularly carry a balance, those who rarely incur interest charges might be better off receiving a return for their spending on a card with a higher interest rate.

2. Fewer Benefits

Credit cards with the lowest interest rates tend to have fewer benefits. For example, airline rewards cards with higher interest rates may offer not just frequent flier miles, but checked baggage fee waivers, priority service, and even an airport lounge business membership. Of course, there is no reason why you can’t hold one of these cards for the benefits, but then make most of your charges to a low-interest credit card.

3. No Sign-Up Bonus

One of the great things about the highly competitive market for credit cards is that banks will frequently offer new applicants hundreds of dollars worth of points or miles just to give their products a try. Yet you typically won’t find these generous offers when choosing a low-interest credit card. When cardholders are not paying a large amount in interest charges each year, the value of these offers can exceed any additional interest costs. But once again, there is nothing to prevent cardholders from earning the sign-up bonus, and then using a low-interest credit card when they need to carry a balance.

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4. You Might Miss Out on Promotional Financing Offers

The only thing better than a credit card with a low interest rate is one with an interest rate of zero. Many credit cards offer new applicants interest-free promotional financing on both new purchases and balance transfers. While these offers may be for cards with a low interest rate, cards with the very lowest interest rates generally don’t offer promotional financing.

5. Cardholders May Not Qualify for Lowest Rate

Many credit cards offer a range of interest rates, depending on the applicant’s creditworthiness. So while the lowest rates in that range might be competitive, only applicants with excellent credit will qualify for those low rates. Everyone else will receive a less competitive rate. You can get your credit scores for free on Credit.com to see where you stand.

6. May Encourage You to Carry a Balance

Even if you are successful in applying for and receiving a credit card with the lowest interest rate, then you might see this as an invitation to carry a balance. Yet with or without a low interest rate, credit card users will always save money by paying their monthly statement balance in full and on time. If having a low-interest credit card encourages you to do otherwise, then it probably isn’t worth it.

7. Penalty Interest Rates May Apply

Most credit cards, even one with low interest rates, will charge customers very high interest rates when they fail to make a payment on-time. This rate, called the penalty interest rate, can be two or three times higher than the standard interest rate, which will be incredibly costly. Thankfully, there are a few credit cards with no penalty interest rate like the Citi Simplicity and the Discover it. These cards also have competitive interest rates, but they may not be the lowest available.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

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This article originally appeared on Credit.com.

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