Credit Cards: Should You Choose a Low APR or Great Rewards?

Choosing between a credit card with a low Annual Percentage Rate and a credit card with great rewards is a common dilemma for a consumer. The right choice will vary on your spending and debt management habits.

Companies’ incentives for offering either

With every purchase on a credit card, the consumer is taking out a loan where the lender expects to earn interest on the amount lent. Low APR credit cards charge low interest rates on balances carried over month to month, but don’t usually offer rewards. Great rewards credit cards will award perks, such as cash back and points for gift cards and airline miles, but the APR will typically be higher.

In the eyes of credit card companies, low interest rates are appealing to consumers who tend to carry a balance, or not pay off their full bill each month, thus allowing the issuer to collect interest charges. Great rewards are attractive to consumers who are frequent shoppers but do not carry high credit card balances. Instead, card companies profit from the portion of the card processing interchange fee that merchants pay for every transaction.

How to decide which type of credit card

The determining factor for choosing a low APR credit card or rewards credit card is the tendency to carry a balance. Minimizing your finance charges on a credit card is the primary goal.

If you expect to be carrying a balance on a regular basis, a low-interest credit card would be ideal. Earning cash back on all your purchases isn’t financially wise if you are carrying a balance that is charged a high interest rate, which compounds to even more interest over time.

If you are diligent in paying off your entire credit card balance month after month, a rewards credit card offers the greatest perks. It doesn’t matter if the APR is 11.99% or 15.24%, because by paying off the entire balance, you will not be charged any interest so the APR becomes irrelevant. Instead, take advantage of rewards or cash back credit cards.