You might have noticed that credit cards with low interest rates do not tend to come with reward schemes whereas credit cards with reward points tend to have higher interest rates. This begs the question are the reward points worth the high interest rate?
In this article, we would examine these two types of credit cards and uncover when each type of credit card might be more appropriate, but before we delve into the pros and cons of each type of credit card, let’s take a closer look at each to get a better understanding of what makes a credit card a low interest credit card or a reward credit card.
What is a Low interest credit card?
A low rate credit card or a low interest credit card is a credit card with an interest rate that is usually at least 5 percentage points below the average standard credit card rate. As at the time of this writing, this equates to an interest rate of 15% or lower. In New Zealand, low interest rate credit cards tend to have an interest rate of less than 14%.
Low interest credit cards do not tend to come with any extra perks or reward points for using your credit card, but some low interest credit cards come with no annual fees which is a nice addition.
What is a Rewards credit card?
Rewards credit cards are credit cards that allow you to earn points or cash back for using your credit card for purchases. Some credit cards offer other forms of rewards such as discount prices at some stores, VIP lounge access, travel insurance, purchase protection etc. Reward credit cards tend to have higher interest rates than low interest credit cards and almost always come with an annual fee which is often higher than normal.
Some rewards credit cards also offer upfront bonus points but these bonus points are often tied to you spending a certain amount within the first few months of owning the credit card.
Low interest or Rewards credit card?
If you are getting your credit card with the aim of making a few purchases to which you cannot afford to pay in full and plan to pay it back in a few months then a low interest credit card might be more suitable for you as you would be charged less interest on your loan and you are likely to save on the annual fee which tends to be much higher for with rewards cards.
If your credit card is intended as a backup form of payment to which you do not plan to use very often then a low interest credit card might be more suitable over a rewards credit card.
Rewards credit cards require you to spend a lot on your credit card in order to accumulate enough points to be worth it, therefore if you do not plan to spend a lot (thousands) on your credit card, then you are probably better off with a low interest credit card.
On the other hand, if you have no problems paying off your credit card bill each month and are planning to spend a significant amount on your credit card to accumulate reward points then a rewards credit card might be suitable for you, but make sure you do the maths first and to find out how much actual dollar value you would be getting and don’t forget to take into consideration the annual fee you would be paying for the credit card.
Of course, reward credit cards often offer more than just reward points and cash back and may offer other benefits such as free travel insurance, VIP lounge access and more. You would need to put a dollar value on these extra benefits to get a better understanding of the true value of the reward credit card.
Reward credit cards might not be suitable for you if you are not disciplined enough to make regular repayment on your credit card and are willing to spend a lot on your credit card. Note: if you end up carrying a balance on your credit card then the high-interest rate is likely to offset the benefits of the reward points you earn.
So there you have it, we hope this would help you pick the right card to suit your needs.
Considering getting a credit card?
The best credit card for you would depend on your personal circumstance and how you intend to use your credit card. We have put together a list of some of the best credit cards in New Zealand to help you find the best credit card in NZ to suit your individual needs. Alternatively, you can narrow down your search by credit card type such as interest free credit card, low rate credit card, balance transfer, credit card reward or air nz credit card