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In the rush to checkout this Christmas season, you might be tempted to say yes when asked if you want to apply for a store credit card — especially if it’s offering you extra savings when you shop that day.
But there’s good reason to think twice before signing up this season – soaring interest rates could mean you end up paying more than you save for whatever store-brand benefits are on offer.
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Some brands charge as much as 30.74%, which is “crazy high,” according to Ted Rossman, chief industry analyst at CreditCards.com.
Overall, recently variable credit card interest rates climbed to 19.14%according to Bankrate.com.
The higher rates come as all kinds of borrowing have become more expensive as the Federal Reserve works to combat record high inflation.
“If you’re going to have a balance, it’s definitely a big risk,” Rossman said.
Retail credit cards generally come in two varieties: a store-branded credit card or a co-branded card with other names, often Visa or Mastercard.
Store-only credit cards now charge an average of 28.22%, while retail co-branded cards charge an average of 25.01%, CreditCards.com found.
Some brands tend to charge higher rates.
Those that can charge a maximum APR of 30.74% include the Speedy Rewards Mastercard, the Kroger Rewards World Elite Mastercard and nine brands affiliated with Kroger, according to CreditCards.com.
But borrowers can get better deals on these cards based on their credit records.
Other store-only cards may charge 29.99%, including Big Lots, Discount Tire, Jared, Kay Jewelers, Piercing Pagoda, Sterling Family of Jewelers and Zales, according to CreditCards.com.
As inflation continues to push consumer prices higher, more than a third of shoppers — 35% — said they might apply for a retail credit card this year, up from 29% last year. a recent survey by LendingTree.
“It’s really important that you understand what you’re getting into before you apply,” said Matt Schulz, chief credit analyst at LendingTree.
It can help in the long run if you resist accepting the offer at checkout and instead dig deeper into the terms and conditions before signing up later, he said.
Borrowers should also be on the lookout for deferred interest offers that allow consumers to take advantage of 0% introductory rates. However, once they expire, they may be charged back interest on their balances.
“Be especially careful if the store card offers a deferred interest promotion,” Rossman said. “That back interest can really hit you.
You can also consider alternative ways of borrowing.
While a big-ticket purchase can offer significant savings on a store credit card, the potential rewards through a general-purpose credit card may be even more generous or better suited to your spending style, Rossman said.