Retail credit cards are a common way for retailers to attract and retain customers, but the skyrocketing APRs on many of these retail cards can quickly negate their incentives.
Data from Bankrate found that the average APR for retail credit cards has hit a record-high 30.45%, far above the average consumer credit card rate of 21%. The report was based on a survey of 108 store cards from leading retailers.
“The typical retail credit card has always been a product with easier underwriting standards, however, the tradeoff is higher rates on the consumer side and higher delinquency rates on the issuer side,” said Ben Danner, Senior Credit and Commercial Analyst at Javelin Strategy & Research. “With rates on private label retail cards reaching above 30%, consumers that revolve are really going to feel the pain.”
Paying in the Long Run
Although many retailers offer incentives like a 20% discount on the initial purchase, if the customer carries a balance and only makes minimum payments, they end up paying far more in the long run. This is especially true at retailers like Big Lots, Michaels, and Petco, where retail cards carry APRs of 35.99%, the highest among the retailers surveyed.
Another common offer is 0% interest for a set number of months. However, if a consumer doesn’t pay off their balance by the end of the promotional period, they may be charged interest retroactively for every month within that timeframe.
Other Options
For disciplined customers, retail credit cards can be a powerful tool to cut costs. However, the risks tied to high interest rates have driven many consumers toward other options like buy now, pay later loans or debit cards. Still, there is the possibility that the current surge in credit card APRs may be a short-lived phenomenon.
“According to data from Javelin Card Bench, retail cards have some of the highest rates among co-branded credit cards as well,” Danner said. “Those APRs are tied to the prime rate, which continues to remain elevated at 8.5%. We are expecting rate cuts to begin soon, and interest rates will begin to decrease accordingly.”
