Lloyds Bank has dramatically dropped the rate on its no-frills credit card to just 5.7 per cent APR interest – the lowest rate on the market.
Instead of offering 0 per cent on balance transfers or new purchases for a fixed period and then reverting to an APR of around 18 per cent as other cards do, the Lloyds card charges a consistently low rate from the off.
The advantage of this type of deal is that you won’t get caught short if you haven’t paid down your balance by the time the 0 per cent offer ends. Instead, you’ll pay interest at a much lower rate overall.
Would you be better off? A no-frills low rate card comes with none of the traps of a disappearing interest-free deal
Last month, Lloyds Bank cut the 0 per cent term on its previously market-beating balance transfer card from 43 months to 38 months, following several high-profile warnings that households were piling up debts on the back of rock bottom interest rates.
Many other lenders have also recently shortened their previously eye-catching 0 per cent interest credit cards and tightened their lending criteria after the Bank of England warned it was concerned providers were making cheap debt too easily available.
The Bank has also warned it’s worried that a consumer debt mountain is building.
What is Lloyds Bank offering?
The Lloyds Platinum Credit Card charges just 5.7 per cent APR. It comes with no handing fees on balance transfers if you shift debt to the card within the first 90 days. After that you will be charged 3 per cent.
There is no annual fee but you can only apply for the credit card online.
Only those with the best credit scores will qualify for the lowest rate. Those without a strong score may be rejected, and as many as 49 per cent of successful applicants may be offered a higher rate of 10.9 or 14.9 per cent depending on their circumstances.
Foreign transactions cost 2.95 per cent. Cash withdrawals are charged at an extra 3 per cent and any money withdrawn incurs interest immediately.
How does it compare to rival offers?
Lloyds Bank offers the cheapest rate on the market without any promotional deals attached.
But MBNA may be a cheaper option for some. Its Five Credit Card charges 0.8 percentage points less than Lloyds Bank, but there is a catch – the rate only applies to purchases and transfers made within the first 60 days AND it only lasts for five years.
After that, and on all transactions outside the first 60 days, you pay a higher 8.9 per cent interest.
The AA’s Low Rate Credit Card is the closest competitor to Lloyds Bank, charging 5.85 per cent on purchases and balance transfers.
It also comes with no balance transfer fees for the first three months and gives three months 0 per cent interest on balance transfers and purchases.
If you are going to be using the card for everyday spending and you shop at Tesco you may prefer the supermarket’s Low Rate Clubcard Credit Card. This comes with a 5.9 per cent rate but pays reward points on your spending.
You get five points for every £4 spent in stores, or on Tesco fuel, plus you earn one point per £8 spent outside of stores.
You can read more about the top deals in our regularly updated low-rate credit card round up.
This is Money’s verdict
Choosing a low-rate option costs more than a balance transfer credit card if used correctly. But if you are likely to fall foul of the traps, they could be a safer and cheaper option long term.
While long interest-free terms mean more time to clear your debts, it’s easy for borrowers to lose track of when they end.
Spend beyond the limit, miss a payment or pay late and the bank can also whip away your interest-free promotion completely.
While the new Lloyds Bank credit card hasn’t undercut rivals by a huge amount, it now charges the best rate in town.
As a new best-buy deal it is likely to receive a lot of applications though, so anyone without a perfect score may be better off applying for a rate further down the tables as their chances of success, and being offered the headline rate, may be higher.
THIS IS MONEY’S FIVE OF THE BEST CREDIT CARDS
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