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With the average interest rate on retail store credit cards approaching 30%, many holiday shoppers could face even more financial trouble this year if they carry balances.
According to new data, the average annual percentage rate of commercial cards reached 28.93%, a new record, from 26.72% last year. Bank interest rate.
“We’ve seen interest rates on all kinds of credit cards rise in recent years, but store cards are getting more and more attention,” said Ted Rossman, senior industry analyst at Bankrate.
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In the past, Matt Schulz, LendingTree’s chief credit analyst, said interest rates of 29.99 percent are listed on all types of credit cards as so-called penalty rates, or the rate the issuer will charge a consumer who defaults on payments.
“It’s becoming more and more common for this to be a possible standard rate on many credit cards,” Schulz told CNBC in a previous interview.
While it may be easier to qualify for retail store credit cards, especially for those with low credit scores or little credit history, experts say consumers should be careful when deciding to open a line of credit with such a high rate.
When should retail credit cards be avoided?
Retail credit cards can help shoppers save money on purchases and gain early access to sales; This can be a valuable benefit as long as you pay off the card in full. But experts say you may want to avoid them if you’re going to maintain balance.
“With interest rates this high, if you carry that debt for a long time, those purchases can cost you more than double the price when you first purchased the item,” said Sara Rathner, credit card expert and writer at NerdWallet.
Holiday debt has a way of sticking around. Nearly 52 percent of Americans incurred credit card debt while holiday shopping last year, and as of mid-August, nearly a third had yet to pay off their balance, according to NerdWallet’s. 2023 Christmas Shopping Report.
But nearly 74% of 2023 holiday shoppers still plan to use a credit card to buy gifts this year, NerdWallet finds.
For holiday shoppers who might consider opening a retail credit card for holiday purchases, Bankrate’s said it might be wise to do so if a big discount is offered or if the purchase is something you or the gift recipient will benefit from in the long run. Rossman.
Otherwise, Rathner added, shoppers may want to question what impact the transaction will have on their financial future.
‘These 0% promotions are very dangerous’
Retail credit cards often offer 0% interest promotions defined as:But if the cardholder accidentally misses a payment or doesn’t pay the full balance, “these 0% promotions can be dangerous,” Rossman said.
NerdWallet’s Rathner said consumers may see deferred interest offers more commonly at stores where they’re more likely to make large purchases like appliances or furniture.
With interest rates this high, these purchases can cost you more than double the initial cost.
Sarah Rathner
Credit cards expert and writer at NerdWallet.
With a deferred interest agreement, cardholders are given a certain period of time to make payments with 0% interest. He added that if they haven’t paid off the purchase in full by the end of the period, they will not only earn interest on the remaining balance, but will also be paid interest retroactively on the original purchase price.
“If you bought a sofa for $2,000 and you still owe $500 when the promotion ends, you not only owe $500 in interest, you owe $2,000 in interest,” Rathner said.
Rossman added that this is a “very sneaky” and common tactic often used in retail cards.
Don’t make financial choices at the checkout
Take your time when deciding whether to open a new line of credit, but don’t decide at the checkout.
“People make bad decisions because they don’t think things through or understand what’s going on,” Rossman said.
Ask for a take-home brochure and then research the credit card and its terms online. See what other offerings are available and perhaps evaluate competing products against each other to find the option that best suits your needs, Rathner added.
“Don’t make this decision during the holiday season in a crowded store with everyone behind you yelling at you to finish,” Rathner said.
