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Interest rates

If you find that you usually carry a substantial balance forward each month, then the interest rate you pay should be your main consideration above any other factors. However, you may also find that taking out a personal loan to clear up some of your borrowings may represent a better value solution than using credit cards. This will depend on your individual circumstances; even though credit cards generally incur higher interest charges than personal loans or secured borrowings (see mortgages and re-mortgages) their major advantage is the flexibility that they provide. [Search for low interest credit cards]

Interest Free Period

If you repay the balance in full each month, you will not usually pay any purchase interest, unless you have a low-interest card which charges you interest from day 1. Paying the balance in full effectively gives you up to 59 days' (this varies between credit card issuers) interest free credit; this is also known as the grace period.

Purchase APR Rates

This is the rate you will pay on all balances due to goods or services purchased. It is usually calculated from the day the purchase is made, therefore if you do not repay your balance in full, you will instantly be charged interest on the grace period, as well as for each day after this. See our "best way to pay off your monthly balance" guide for more details.

Balance Transfer Rates

These can often be at extremely attractive rates during the first 6 months, or during an introductory period which expires on a certain date (e.g. March 2004). Some balance transfer rates will last for the life of the balance, although in all cases you should beware that when you make repayments, these will come off the balance transfer first, and therefore to get the best out of these balance transfers, you should not use the card for any other purpose. For more information on balance transfers, see our long glossary definition. [More on balance transfers]

Cash Advance Interest Rates

If you use your credit card for cash advances, many issuers will charge you a higher APR for this than for regular purchases, due to the higher credit risks incurred by them. You will also be charged a service fee of 1.5-2%, and if you are using your card abroad, you are also likely to incur an international transaction fee of up to 2.75%. New Finance advise avoiding making cash advances as much as possible, unless a special rate is offered on similar terms to a balance transfer, or if you need to withdraw cash abroad (the fees are generally no less when you use your current account, and it is usually much harder to keep track of your balance when you a travelling). [More on using your cards abroad]

  • See our emergency fund glossary guide for tips on how to avoid needing to make cash advances.
  • See our Nationwide page for more information about fee free, or low fee cash advances.

Cash back rewards and other incentives

If you usually pay your balance off in full each month, then interest rates are unlikely to be an issue, providing you select a card which gives you an interest free grace period. As all retailers have to pay their credit card clearing companies a percentage of every sale, cash-back cards allow them to share some of it with you. These cards range from straightforward cash award programmes, such as American Express Blue, through to supermarket loyalty point credit cards on offer from Tesco and Sainsbury's, and more comprehensive membership reward programs such as Air Miles and American Express Green.

Money saving tip: Beware that when you are using cash back cards, you are only getting a 1% reward, and that you still have to shell out the other 99%! Never buy anything just to get the rewards - whether on your credit card, or using supermarket loyalty cards.

Additional services

Some cards offer a huge range of additional services beyond ability to make payments around the world. These may include cardholder protection, free insurance, or a price match value promise. Other cards will have special offers which give you discounts on associated services, such as a travel insurance policies, currency exchange, utility bills, or flight and holiday deals. When evaluating these packages, make sure that you work out how much each additional benefit is really worth to you - for example many stores will offer their own price match service, whereas services such as a free legal help line, or annual travel insurance, may be worth a great deal to you.

For frequent travelers, a card such as American Express offers fixed payments should you be denied boarding on a scheduled flight, or should your flight be delayed overnight. You only need to use a service like this once per year to justify paying the annual fee - but if you only fly two or three times per year, the chances of it being useful would be very slim, especially as the delay needs to be quite extensive to qualify for maximum benefits.

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