Credit card interest charges for retail purchases hit an all-time high.
"Alright, why not?" you ponder.
But here's why you might want to reconsider: If you ever end up with an outstanding balance on that card, you could end up shelling out a fortune for your purchase.
A recent study conducted by Bankrate revealed some startling findings. They surveyed the interest rates of 108 store cards from prominent retail brands in September, and found that these rates have hit an all-time high since 2008. The average interest rate for a store card now stands at 30.45%, a significant increase from 24.35% in 2021 and far above the current average for regular credit cards (roughly 21%). The highest Annual Percentage Rate (APR) discovered was an eye-watering 35.99% for cards issued by Academy Sports + Outdoors, Petco, Burlington, Piercing Pagoda, Good Sam, Big Lots, and Michaels.
The study also disclosed that 13 retailers will charge you 34.99% if you carry a balance, including Athleta, Banana Republic, Nordstrom, JCPenney, Old Navy, American Eagle, T.J. Maxx, HSN, Walgreens, QVC, and Tire Rack.
Let's break down how these high rates could impact you:
Imagine you sign up for a retailer's card the same day you make a $1,000 purchase, and you receive a 20% discount, making you believe you've saved $200. However, if you hold a $800 balance with an annual APR of 35.99% and can only pay the minimum monthly payment of $35, you'll end up owing $570 in interest, and it will take you almost 3.5 years (40 months) to fully pay off the purchase, according to Bankrate senior industry analyst Ted Rossman's calculations. So, the initial $800 you thought you paid ends up costing you $1,370.
Or, consider that the interest you would pay in this scenario would wipe out the $200 you "saved" within just 9 months of making minimum required payments.
Retail cards with astronomical rates can also cost you more than you anticipate in other ways. For example, you might sign up for a 0% promotional offer, meaning you won't be charged interest during a specified period. However, if you fail to completely pay off your balance before the promotional period expires, you will be retroactively charged interest for each month within that period.
On a positive note, the study reported the lowest interest rate for a retail card at 10% for the Amazon Secured Card. The next lowest was 15.49% for the Military Star card.
Bankrate also discovered that several retailers continue to charge rates similar to general credit cards: Costco Anywhere Visa by Citi (20.49%), Bass Pro Shops CLUB (21.12%), IKEA Projekt (21.99%), and IKEA Visa (21.99%).
"The best way to utilize any credit card is to pay the full amount every month to avoid interest. That's particularly important for retail cards," said Rossman in a statement. "Don't be swayed and apply for one impulsively at the checkout counter. It's alright to say 'no' or 'not now' or 'I'll think about it.' The retailer may entice you with a 10% discount today, but that's not worth it if you'll end up paying a 30% interest rate for years to come."
Of course, if you never carry a balance, some retail cards may prove beneficial in the long run, Rossman noted.
"There are certain circumstances where retail cards could potentially save you money. Some stores like Amazon, Best Buy, and Target offer 5% cash back every time you use their card for purchases. That's likely better than any other card. For a dedicated shopper who pays in full and avoids interest, that's a compelling value proposition," he concluded.
Given the high interest rates on store cards and the potential financial impact, it's crucial for individuals to be aware of their spending habits. Businesses should consider offering more competitive interest rates to attract and retain customers, as high fees could negatively impact the economy by burdening consumers with excessive debt.
