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Low Interest Credit Cards

Credit cards can be a cheap way to borrow money, but only if used correctly, that is, if you pay off your balance as often as possible and keep things like withdrawing cash and foreign usage to a minimum. If you're unhappy with your current deal and in search of a new card, it makes sense to find a low interest credit card.

The cards below are listed in order of those offering the most competitive standard or long term APR for purchases (not just introductory rates). A low interest credit card can save you money if you do not intend to pay off your balance each month. The lower the APR the cheaper the interest.

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Rates on the rise

In February 2010 a report from Moneyfacts, the financial information provider, revealed credit card interest rates were at their highest for 12 years despite interest rates being at a record low.

The average annual percentage rate (APR) charged for credit card debt had soared from a low of 14.8% in February 2006 when the base rate was 4.5%, to a steep 18.8% compared with a Bank of England base rate at just 0.5%.

This means that credit card borrowers with a debt of 5,000 on their card - who make only the minimum repayment each month - will now repay an additional 2,289 over the life of the debt compared with what they would have paid in 2006.

It has never been more important to check the interest rate you're paying and, in many cases, to switch to a low interest credit card.

Martyn Saville from consumer body Which?, commented: 'These new figures are staggering at a time when both base rate and interest rates for savers remain historically low. Credit card users in the UK are being punished for the banks' poor lending decisions in the past and for lenders' need to rebuild their own balance sheets and profit margins.

Credit card rates have been soaring, even for good, loyal customers. According to the UK Cards Association, more than 6.4 million credit card accounts were "re-priced upwards" in 2009.

Consumer champion Martin Lewis, says: "These massive increases are what we call 'rate-jacking' as the companies involved are hijacking accounts and potentially blighting people's ability to manage their debts."

The increases are a consequence of more providers using 'rate-for-risk' which essentially is the card provider assigning an interest rate to a borrower based on their credit record and repayment history. Card companies have a range of rates and the rate offered will depend on the applicants credit score; those that appear to be a higher risk, or are more likely to default on their debts, will be charged a higher APR. Research from Defaqto shows that two thirds of applicants will get the best 'headline' rate, but up to one third will be offered a higher rate.

If you are a good credit risk, then there are still decent low interest credit card offers available. Loyalty to you current provider isn't necessarily the most prudent course of action.

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