As shoppers head for the mall or the keyboard for their holiday shopping this year, they will receive many offers to open a credit card account that is good only at the retailer where they are currently shopping or making a purchase. These store credit card accounts offer some benefits, but all include one serious drawback.
First the benefits. For consumers who need to build credit or repair a shaky credit history, these cards, most of which have no fees attached, are an inexpensive way to get started. Sign-up bonuses can also be provide immediate benefits not easily matched by general rewards cards.
The big downside is that most store cards offer deferred interest payments, wherein a consumer pays no interest on the charge provided that they pay the amount in full within a specified period, which can be as much as 18 to 24 months. If consumers don’t pay the full amount, a finance charge is added to the original purchase beginning at the date of purchase. And if they miss a payment, interest charges are also levied on the same terms.
Researchers at WalletHub provide the following example:
Suppose … you’re interested in opening a new credit card account to finance a couple of big-ticket items [that] cost a total of $800, an amount you think you can repay within six months in the absence of interest. But things happen, and it ends up taking you seven months instead. With a normal 0% credit card, you’d end up paying about $2 in interest (assuming a 20% regular APR) because interest would apply only to the balance remaining at the intro term’s conclusion. But with a deferred-interest credit card, you’d be on the hook for roughly 27.5 times that amount (i.e. $55 in interest).
Half the people surveyed by WalletHub think that deferred interest should be illegal and two-thirds said they would not sign up for such a card. Well over half (61%) believe deferred interest is unfair.
WalletHub noted several well-known retailers that offer store cards without a deferred interest charge: Costco, Target, Nordstrom, Bass Pro Shops, Gap and Belk, among others.
Companies that do offered deferred interest store cards include Amazon, Apple, Tractor Supply, Toys “R” Us and J.C. Penney, among others.
WalletHub rated store cards available from 75 retailers that offer deferred interest on how transparent their websites are regarding the deferred interest terms. Among the most transparent (scoring 10 out of 10 on the WalletHub scale) were Tractor Supply, Apple, Home Depot and Dell, among others.
The least transparent were store cards from Pottery Barn and West Elm, both of which scored 0 out of 10.
According to WalletHub, the three retailers offering the best store cards are Amazon, Toys “R” Us and TJX (T.J. Maxx and Marshalls stores, among others).
WalletHub also offers more details on deferred interest on store cards from selected categories of retailers.