Free vs paid: how to choose between low interest or interest-free credit cards

Free vs paid: how to choose between low interest or interest-free credit cards

When it comes to choosing your first or next credit card, it’s easy to feel overwhelmed with all the options. Whether it’s deciding between rewards programs, credit card issuers or if you’re team Visa, Mastercard or American Express, there’s a lot to consider.

One of the biggest questions you may ask yourself is whether it’s better to choose a low-rate credit card or take advantage of zero per cent interest introductory credit cards. Both credit card types have their benefits and their disadvantages and may better suit certain types of card users.

Let’s explore low interest versus interest-free credit cards and help to discover which type may suit your financial needs.

What you need to know about interest-free credit cards

Interest-free, or zero per cent interest credit cards, are a type of credit card option in which the card issuer does not charge the cardholder interest for a set period of time. This may be as a promotional, introductory offer to entice new customers to sign up for said card, or in the form of a balance transfer credit card for those struggling to pay off credit card debt.

Having months-long interest free periods may afford a cardholder a greater window to make purchases and pay off larger balances before accruing interest. For someone paying off existing credit card debt, it may offer a lifeline to stop a debt snowballing further while you have breathing room to pay it off.

While ‘interest-free’ may sound ideal, it’s still important to remember that your zero per cent interest rate will eventually revert back to the issuer’s standard purchase rate, which is typically higher-than-average. Also, you may find that you’re charged in other ways, such as annual fees and foreign transaction fees.


  • Large window of time to make purchases without accruing interest
  • Pay off your existing debts without falling further into debt


  • Interest-free period will end and generally revert to a high purchase rate
  • You may still be charged fees and other costs

What you need to know about low fee credit cards

The average credit card rate generally sits around 15-17 per cent - and this hasn't shifted too much in the last decade. Low fee credit cards do not pretend that they won’t charge you interest on your purchases but will offer you a lower-than-average interest rate - typically under 12 per cent.

As having a purchase rate on a credit card is generally unavoidable, if you know you’re the type of cardholder to get stung with interest, you may want to consider a low-rate option instead. Keep in mind that a card issuer may still charge you in other ways, such as annual fees or balance transfer fees.

Higher interest rates are typically associated to higher reward credit cards, such as those offering rewards programs and frequent flyer rewards points. The trade-off for paying less interest may be that you’re afforded fewer perks with a low-rate credit card.


  • You will pay less interest and therefore lower credit card repayments
  • Reduce your risk of falling into debt from accruing interest on an outstanding balance


  • Fewer perks and rewards are generally offered
  • Higher fees in some instances

How to pay no interest on your credit card

Realistically, if you want to avoid paying interest on your credit card, you’ll want to ensure you’re not spending out of your budget and you’re always paying off your balance in full each statement period. This is the ideal scenario for every credit card user. However, it’s not always realistic as financial situations can change at any time.

If you’re the type of cardholder who struggles to pay their balance in full, it may be worth considering a low-rate credit card. After all, if you’re going to face paying purchase rates eventually, you may as well try and find a card that offers as low an interest rate as possible.

If you’re looking to pay off an existing card debt, a zero per cent balance transfer credit card may offer you the much-needed breathing room you require to chip away at your debt once and for all. Just ensure you make a plan to pay the balance off in full, and ensure you lock away the balance transfer credit card, so you’re not tempted to spend and add to your existing debt.

For someone looking to make a one-off bigger purchase, such as new furniture and appliances, or a holiday, a zero per cent purchase credit card offering a large interest-free window may suit your financial goals. Assuming you’re approved for the card and an appropriate credit limit, you’ll be able to make your big purchase and have time to pay it off without falling into debt.

Also, keep an eye out for the number of interest-free days a credit card offers before you apply. If you’re looking to avoid interest charges but don’t want to commit to a zero per cent interest credit card, consider if a card with a high number of interest-free days (44-55 days) may better suit your needs.

Most importantly, if you’re struggling to make your credit card repayments on time, reach out to your card issuer. They should be able to help you with hardship support and potentially get you on a lower interest, or in interest-free, payment plan.

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Fact Checked -

This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.



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Learn more about credit cards

How does credit card interest work?

Generally, when we talk about credit card interest, we mean the purchase interest rate, which is the interest charged on purchases you make with your credit card.

If you don’t pay your full balance each month (or even if you pay the minimum amount), you are charged interest on all the outstanding transactions and the remaining balance. However, interest is also charged on cash advances, balance transfers, special rate offers and, in some cases, even the fees charged by the company.

The interest rate can vary, depending on the credit card. Some have an interest-free period, otherwise you start paying interest from the day you make a purchase or from the day your monthly statement is issued. So avoid interest by paying the full amount promptly.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How to calculate credit card interest

Credit card interest can quickly turn a manageable balance into unmovable debt. So being able to understand how interest rates translate into dollars is an important skill to acquire.

The common mistake people make is focusing on the credit card’s annual percentage rate (APR), which often sits between 15 and 20 per cent. While the APR does provide a rough idea of how much interest you’ll pay, it’s not entirely accurate.

This is because you actually accrue interest on your balance daily, not annually. So, you need to work out your daily periodic rate (DPR). To do this, divide your card’s APR by the number of days in a year (e.g. 16.9 per cent divided by 365, or 0.05 per cent). You can then apply this figure to the daily balance on your credit card.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

Can I transfer money from my American Express credit card to my bank account?

If you’re an American Express credit card customer, you may not be able to transfer money from your credit card to your bank account. However, you may be eligible for cash advances, which involves withdrawing money through an ATM. 

To qualify for a cash advance, you’ll likely have to enrol for American Express Membership Rewards. Consider checking your online credit card account to see if you can withdraw a cash advance and, if so, the fees and charges you’ll incur for this transaction. 

You should remember that cash advances are different from balance transfers, which were available with some American Express credit cards earlier. Balance transfers allow customers to consolidate debt from high-interest credit cards to a credit card offering a lower interest rate. If you only recently applied for an American Express credit card, balance transfers may not be available irrespective of the card you own. 

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

What should I do if my ANZ credit card has expired?

Your ANZ credit card is considered expired only after the last day of the month and year marked on your card. For instance, if your card’s expiry date reads 03/22, it is valid until 31 March 2022 and expires on 1 April 2022. Typically, you should have received a new credit card by that date, and you won’t have to request a new card. 

Once you get the new card, you should remember to switch any automatic payments you have - such as a utility or mobile phone bill - from your expired credit card to your new credit card. Equally, if you are using CardPay Direct to repay your ANZ credit card debt, you may need to update the credit card account details for that service as well. 

In case the new card doesn’t arrive by the expiry date of your current credit card, you can call ANZ on 13 22 73 to find out the reason and if you need to request an expedited card. Please note that if you were planning to close your credit card account or request a credit card upgrade, you may need to call ANZ at least before the 25th of the month your current credit card expires in, as that’s when they may send you the new credit card.

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

Which credit card has the highest annual percentage rate?

The credit card market changes all the time, so the credit card with the highest annual percentage rate is also liable to change.

Keep in mind that credit card interest rates are expressed as a yearly rate, or annual percentage rate (APR). A low APR is generally good but also consider:

  • There can be different APR's for each feature of the card (e.g. purchases may have an APR of 14 per cent, while cash advances on same card could have an APR of 17 per cent.
  • Credit cards with a variable rate can change throughout the year, affecting your APR, so check the full details.
  • If you pay your balance in full every month, having the lowest APR is not as important as the other fees associated with the card. However, if you carry a balance from month to month, then you want the lowest APR possible.

How do I apply for a BOQ credit card limit increase?

If you’re an existing BOQ customer, you can request a BOQ credit card limit increase over a phone call. However, you should remember that owning and using a credit card is a matter of financial responsibility, so it might be worth thinking this decision through. 

When requesting a credit card limit increase, you’ll need to be just as responsible in terms of how much you earn and can set aside to repay the outstanding card balance. A credit card company may approve a credit limit increase only if you can show that you have either the income or the disposable income, which is the amount you have left after all expenses have been paid out.

For this purpose, you may need to submit your latest income documents and bank statements for an increase. You may want to estimate how much you usually have left after deducting your expenses, and then use this amount to try and convince the credit card company. Also, you may prefer to pay off the card balance in full each month and thus avoid paying interest on the card, helping you back up any claims of financial responsibility, as well. 

Remember that you may not be able to apply for a credit card limit increase beyond any limitations on the type of card you own. For instance, if you own a card whose ceiling is $10,000, and your current limit is $5,000, you won't likely be able to apply for a $10,000 credit card limit increase.

Does ING increase credit card limits?

You may want to increase your credit card limit for many reasons, such as having access to more spending money. However, if you are using the Orange One credit card issued by ING, you may not be able to do so. 

ING customers can choose a credit limit of their preference when applying for the Orange One credit card. Depending on your financial situation, this limit can be anywhere between $1,000 and $30,000. If you qualify for a Rewards Platinum card, the minimum credit card limit will likely be $6,000. 

Ideally, you should set your credit card limit knowing how much you can afford to repay each month and keep your expenses lower than this level. With most credit cards, you should have the option of requesting a credit card limit increase at a later time, although you will need to qualify for any increase. With an ING credit card, limit increases are out of the question (at the time this was published), which means you may want to apply for a higher credit card limit from the beginning. Remember that you have the option of decreasing your ING credit card limit at a later time.