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High interest rates don't deter many shoppers from using store credit cards.
According to one study, when asked to choose between a store card and a buy now, pay later plan, 58% of shoppers surveyed preferred store cards. new Report by LendingTree. The remaining 42% chose BNPL loans.
The site surveyed 2,040 American adults in September.
Matt Schultz, chief credit analyst at LendingTree, said the selection “speaks to the fact that people may be looking for a little more long-term support with their financial situation.”
As of December, the average annual redemption rate for new cards offered by the top 100 retailers was 32.66%, up from 27.7% in 2022. According to Report to the Consumer Financial Protection Bureau. Many short-term BNPLs don't pay interest, but long-term loans do, and higher interest rates increase that rate. Equivalent to store card.
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Young shoppers are early adopters of BNPL, and it shows in their payment preferences.
According to a study by Lending Tree, approximately 59% of Gen Z and 51% of Millennials prefer BNPL over retail credit cards. By comparison, 38% of Gen Xers and 22% of Baby Boomers prefer BNPL.
“Buy now, pay later started as a millennial, Gen Z phenomenon,” Schultz said. “Young Americans were a big driver of growth.”
No matter which payment method you plan to use to finance your holiday shopping this year, keep in mind the cost of taking on debt, experts say.
How store cards and BNPL work
Retail credit cards and BNPL loans work differently.
Retail credit cards are long-term revolving lines of credit offered by stores in partnership with partner banks. To attract new users, stores typically offer applicants a discount on their first card purchase or financing transaction. Cards may also be associated with retailer loyalty programs, and in some cases may offer bonus benefits to cardholders.
Buy-now-pay-later loans, issued through merchant-affiliated providers, typically divide the purchase price into installments over a set period of time. Some providers offer longer repayment terms and may also charge interest. Users can make multiple purchases at once with the same BNPL provider, but they may be treated as separate loans with their own repayment terms.
With either payment method, make sure to pay your balance on time. Penalties can include: Fee Interest is required if things don't go as planned.
Retail credit cards can affect your credit history because your account is reported to the three major credit bureaus: Equifax, Experian, and TransUnion.
BNPL is somewhat “can't see'' to the credit bureaus in the past, meaning the loan was not shown on your credit report. deferred payment, affirm and Klarna This also includes providers who report a portion of their BNPL loans to credit bureaus.
Both forms of payment are attractive to shoppers. Retail credit cards tend to be easier to qualify for than other credit cards, especially as banks have tightened credit card approval requirements in recent months, Schultz said.
Through the third quarter of 2024, some banks tightened lending standards for credit card loans, lowered credit limits, and increased minimum credit score requirements. According to to the Federal Reserve System.
“This is a response by banks to increased delinquencies, increased debt and overall economic uncertainty,” Schultz said.
BNPL is relatively easy to apply for and qualify for.
“The rise of buy now, pay later is the biggest reason Americans are opening fewer store cards,” said Ted Rothman, an industry analyst at Bankrate.
“Considering total cost of ownership”
The holiday season is here and it's a busy time to buy gifts for family and friends. If you're in a situation where a retail credit card or BNPL can stretch your budget, consider the “total cost of ownership,” Rothman says.
“Both of these payment methods can be advantageous depending on how you use them, but they can also be quite slippery slopes that lead to debt and overspending,” he said.
BNPL can be difficult because it can make multiple loans at the same time, and the costs “can stack up,” Rothman said. surely Keep track of any deferred loans you own and make sure they qualify for automatic deductions.
If you can't pay off your retail card purchases by the end of the statement period, any discounts, perks, or perks you might get will be washed away by the unpaid balance plus the interest you owe, Schultz says. says Mr. Said.
“Paying 30% interest to save 15% or 20% doesn't make a lot of economic sense,” Schulz says.
