Here’s what you need to know before opening a retail credit card to get a discount.

3 minute read

Did you know that most people with retail credit cards applied for them at checkout? That’s according to a survey from CreditCards.com, which found that almost one in seven people applied for a retail credit card impulsively while checking out.

Many retailers offer a one-time discount – 20 percent to 30 percent, for example – on your purchase at checkout if you’re approved for their store credit card. That discount can be a big savings over the holidays if you’re buying a lot or even just making one expensive purchase. But retail credit cards also come with some drawbacks that you may not notice when caught up in the excitement of saving money.

For example, store-only retail credit cards usually have a much higher interest rate than many major credit cards. That means if it takes months or years to pay off your balance, those checkout savings will eventually fade, replaced by money you pay in interest. Sometimes, however, charging a purchase to a retail credit card can work in your favor.

Here are four pros and cons of using a retail credit card for holiday shopping.

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You may get a discount

If you’re buying expensive electronics like a laptop, TV or other device, getting a 20 percent discount by opening a new store credi card can save big bucks. For example, if you charge a $1,500 laptop on the new credit card, a 20 percent discount saves $300.

The key to benefiting in the long run from that discount is paying off the balance, though. If you take months or years to pay it off, the amount you’ll pay in interest will eat up part (or maybe even all) of the savings you enjoyed at checkout.

Find out: 5 Pros and Cons of Getting a New Credit Card Before the Holidays

You’ll probably pay more in interest

The average store-only retail credit card APR is 25.77 percent, according to personal finance site WalletHub. That’s much higher than the average non-retail credit rate of 19.92 percent. When you apply for the retail credit card in December, you might plan to pay off the entire balance on the card’s next statement. That way, you won’t have to pay any interest.

But what if you have a big medical bill, lose your job or have another emergency that keeps you from making headway on paying the credit card off? That higher interest rate can come back to bite. How much of a difference can it make? Here’s an example.

On a $2,000 balance paid off over 18 months with a 19.92 percent APR, you would pay an additional $289 in interest. With that same balance on a retail card with a 25.77 percent APR, you would pay $376 in interest.

Find out: Are Store Credit Cards Really a Good Idea?

You might earn rewards

Some retail credit cards have a rewards program that lets you use points earned towards purchases. Just like getting a discount when you apply at checkout, this program can go one of two ways. If you make purchases with your rewards and pay off the balance on the next statement, you can pat yourself on the back for saving money.

On the other hand, if you make a lot of purchases simply so you earn more rewards, you could end up with a high balance or even a maxed out card that takes forever to pay off. If you’re paying a high retail interest rate for months or years, you’ll cancel out at least some (if not all) of those savings you enjoyed while you were racking up rewards.

Find out: Holiday Credit Card Tips to Help Keep You Out of Debt

You can make a large purchase with a 0% intro APR

When you’re making a large purchase such as an expensive appliance that you don’t currently have money to pay for, you can benefit from applying for a retail card that gives you an introductory 0% APR for a year or 18 months. That way, you can pay off the balance over time yet pay no interest.

This is a great deal, but you have to stick to the payment terms. For example, if you pay late one month, the terms and conditions may state that the 0% APR terminates and you’re responsible for the new, higher APR and all back interest from the date of purchase.

Find out: 8 Credit Card Offers That Could Backfire Later

How to decide if a retail card is right for you

Next time a cashier offers you a discount if you apply for the store credit card, take some time to consider all the pros and cons. Read through the credit brochure if there is one, carefully reviewing the terms and conditions, especially the card’s interest rate.

When making a large purchase on a new retail credit card, you can have some breathing room on paying off the balance, which is a good arrangement. If you aren’t positive that you can pay off your holiday shopping balance soon, however, you may want to step away from that retail credit card application.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

Published by Debt.com, LLC