If you are planning to finance a portion of your holiday purchases, you may be enticed to open a store credit card. With the attractive-sounding 0% interest rates, competitive rewards programs, even a discount on your first purchase, the offer sounds too good to be true, right?
That’s because it is. Here are some important facts consumers need to know about store credit cards.
The Truth about “No Interest” Financing:
There are two kinds of no interest financing. When you sign up for a bank credit card with a 0% introductory APR, you are not charged any interest on your purchases until that time runs out. However, store credit cards typically use what’s called “deferred interest” financing. This means that during the introductory no-interest period, interest on your purchases is accumulating, but will not be charged as long as you pay the balance in full.
Here’s an example: Let’s say that you finance a $3,000 jewelry purchase using 24-month deferred interest financing, but the store’s credit card has a 27.99% standard APR. The account has minimum monthly payments of $100, so by only paying the minimum, you would have a remaining balance of $600 once the 24-month interest-free period runs out. However, you would also have approximately $1,000 in deferred interest charges added to your 25th bill because you failed to pay off the entire balance in time. Deferred interest can also be added to your bill if you make a late payment one month.
The Interest will Cost You:
When signing up for a store credit card, make sure and read the cardholder’s agreement, specifically the section that tells you the card’s interest rate. According to a recent report, the average regular APR of a store card is 26.72%, more than 11 percentage points above the overall national credit card average APR of 15.07%. You can expect store cards to have interest rates that are significantly higher than those of general-use credit cards.
A Hard Credit Inquiry Can Affect your Credit Score:
When you agree to apply at the checkout counter, your credit report will be hit with a credit inquiry. Although one inquiry is usually not a big deal, it is not something you want to do if you are thinking of purchasing a home or new car anytime soon. According to FICO, one credit inquiry can have little to no impact on some consumers’ credit scores. For others, it can take five points off your score. When applying for a mortgage, five points could put you into the next interest rate range, costing you thousands over the life of your mortgage.
Rewards are Limited:
Store credit cards usually offer excellent rewards on in-store purchases. However, these credit cards usually offer no rewards for spending out of store.
Bottom line: Beware of the higher-than-average interest rates on these store credit cards, and the consequences of carrying a balance past the end of the deferred-interest period.
If you are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.