Avoid These Store Credit Card Traps
Retailers are putting a lot of incentives in front of customers to open store credit cards this Christmas season, such percentage off, no interest, and no payments for a whole year. But be careful—the offer can end up costing you more money than you save because these cards have interest rates that typically range from 28% to 30%.
Store card interest rates are at an all-time high. Avoid these store credit card traps, according to Ted Rossman, senior industry analyst at CreditCards.com and Bankrate.com. As the holiday season approaches, many stores will actively promote these cards during the checkout process.
Opening store credit cards does give you savings, but they come with costly pitfalls. Customers need to know what they’re getting into when the country as a whole owes $16.51 trillion in household debt (up 8.3 percent from a year ago, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data).
Everything you need to know is explained here, from exorbitant APRs to the reality of delayed interest.
soaring rates of interest
The Federal Reserve has increased interest rates throughout 2022 in an effort to control inflation. As a result, borrowing becomes more expensive. According to CreditCards.com, the average annual percentage rate (APR) for store-only credit cards is currently 28.22 percent, which is an all-time high. The APR for a retail co-branded card is typically 25.01 percent. There are around thirty store cards with rates of at least 29.99 percent. Retail cardholders who make the minimum payment each month incur additional fees of about $1.6 billion as a result of these increased APRs.
Suddenly, 20 percent off that TV doesn’t seem so good if you have a balance. Howard Dvorkin, a CPA and chairman of Debt.com, says, “You should be looking at the interest rate, but most shoppers don’t look at that. They look at deals.” “You must exercise extreme caution.”
So where is the store card’s interest rate listed? That’s in the fine print whether you apply in-person or online. Usually, the APR is tucked away near the bottom of the paperwork. Consider the Amazon store credit card as an illustration. You will need to read the fine print, which is located near the bottom of the website, to discover that the APR is 26.74%. With a large yellow “Apply now” button at the top of the website, applying is simpler.
According to Rossman, you can safely presume that you’ll pay in the upper 20 percent range or more if figuring out the APR seems too difficult. “It can add up if you don’t pay it in full and carry a balance,” he states.
Deferred interest should be avoided. Certain retailers may attempt to entice customers to establish a credit card by providing a 12-month interest-free period and no payments. Although it looks like a fantastic offer, many people are unaware that the business would charge you interest for the entire amount accumulated from the day of the purchase if there remains a balance after the 12-month period. The term “deferred interest” refers to it in the industry, and it’s not the same as a credit card that gives you 0% APR on purchases and/or balance transfers.
Read More: Deferred interest should be avoided
“I once had a client who took advantage of one of those free no payment deals. He mailed in his check on the very last day, and guess what? A day later, the card issuer charged him all the interest retroactively,” Dvorkin adds. “Let me tell you something: That 20 percent savings will vanish very quickly if the card is charging 30 percent interest and you are only making the minimum payments.”
Is it worthwhile?
According to Rossman, you should think about the possible effects that obtaining store cards may have on your credit score, even if you’re getting a good bargain and can pay the debt off at the end of the month. The amount of queries you make in a short amount of time can have a negative effect on your score if you’re applying everywhere to take advantage of discounts or other offers. In that scenario, according to Rossman, it would be wiser for you to use a general purpose credit card and accrue those benefits. Store cards “work best” when the user makes a large purchase, pays in full, and is a devoted customer, according to the expert.
