Base Interest Rates

The base interest rate for your card is the single most important number you need to know when considering which issuer to approach for a new credit account. This number will dictate how much you pay on finance charges and, ultimately, how much you’ll be repaying if you go over the amount of money coming into the account in any particular month.

What It All Means

When looking for a new credit card, it’s not surprising to find that there are thousands of figures and statistics just waiting to be thrown at you the moment you decide to ask an issuer or bank. Finance is one of the most jargon-heavy industries, and sadly most of the time the only reason for this is to allow companies to create loopholes in contracts with customers that allows them to make the maximum amount of profit on someone whilst still running within the law.

Credit cards can be a really valuable tool, especially when making big purchases you know you’re capable of paying for, just not immediately. Our expenses are spread out over the course of the month, and not everything gets dealt with at the end of the week, either. But bear in mind that a slight shift in interest rate can mean the difference between paying £5 per £500 at the end of the month, and paying £10 on the same amount the month after – and that’s only a shift of 1%.

Your base interest rate will change, and not just after your introductory period – the Bank of England decides the base interest rates for the entire country, and any shift in this figure will likely have a large knock-on effect on your own finances. Obviously, the lower the better, but as we begin to drag ourselves out of the recession, this is unlikely to be the case, as the more financially stable you are, the more viable you are as a customer, even to your credit card issuer.

Quick and Painless

Bear in mind that although your new credit card issuer may have offered you a low base interest rate, it often means that you’ve got less time to pay off the balance. If you’re looking at a couple of years to pay off your credit card debt, but your interest rate increases, your small repayment amount can take another two months to get rid of, which in life terms is quite a while longer to be worried or stressed about repayments. Make sure you think carefully about how long you’re willing to deal with any amount of debt and the resulting interest. Making sure you constantly monitor the market is one way to stay on top of any unpleasant or stressful surprises.

Specific-to-Low-Interest Cards

Some cards will have a low interest rate as their main selling point – this is a good idea if you’re new to credit cards as it allows you to get used to the way in which they work whilst not punishing you too badly if you go over the amount coming in that month, or withdraw cash often from the account. However, these cards do tend to come with higher interest rates on balance transfers and purchases, so make sure you’ve got the right balance of low and high rates for the purpose you intend to use the card for – if you’re only using financial services, this kind of card is perfect, and you’re always free to use multiple credit cards at once, as long as you manage them well enough.