When you go shopping, you are probably used to being asked if you’d like to sign up for a store credit card, and get 10% or more off your purchase. These offers can be tempting. Often, they are good. But here’s a word of warning: if you’re not going to pay your credit card in full each month, don’t use a store brand credit card.
According to a recent report, the average store credit card charges a steep 23.43% interest rate. And two-thirds of them charge an annual percentage rate (APR) of 19.99%.
The average credit card has an APR of 15%. That’s looking at all credit cards, nationwide. The Military Star card, the retail card with the lowest flat-rate APR, charges 10.24%. But Zales charges 28.99%, and Staples charges 29.99%. Those are the two highest retail cards. If you carry a balance, that interest rate adds up quickly. No matter how big the rewards and discounts they advertise, it will never make up for how much you’re paying in interest.
The exception to this is if you really do plan to pay your balance in full each month. In that case, go ahead and get a store card, and enjoy all the perks and sales it offers you. Most store cards, 70% according to the study, offer great discounts and other deals to lure customers in.
The discounts keep you shopping
Many of these deals are designed to keep you coming back, and spending more. One in three, according to the survey, have a catch involved that entices the cardholder to come back and shop again. This can be a gift card that comes in the mail, a promise of a percentage off your next purchase, or a free gift next time you come in.
There are benefits to being rewarded for being a loyal customer, and if you truly love a store and shop there frequently, getting a store credit card might be a great idea. However, make sure you will pay off the entire balance every month, by the due date.
Here’s just an example to illustrate the cost of such a high interest rate. Say you carry a $1,000 balance on your card and make only the minimum payment each month. You aren’t making any more purchases, just trying to pay off the $1,000 balance. It would take 72 months—six years—to pay off the balance. If you’re paying the average APR for a retail card, you’d pay $833 in interest.
The survey was conducted in October 2015 and included data from 64 credit cards and 42 retailers.