Although APRs can reach 30%, some consumers prefer retail credit cards to buy now, pay later options.

• A recent LendingTree report found that 58% of surveyed shoppers prefer store cards over buy now, pay later plans.
• The average interest rate for retail store credit cards is slightly above 30%.
• Experts advise to consider "ownership costs" when financing holiday purchases.

High interest rates aren't deterring many shoppers from store credit cards.

A recent survey by LendingTree found that 58% of shoppers prefer store cards while 42% opted for buy now, pay later loans.

The site polled 2,040 U.S. adults in September.

Matt Schulz, chief credit analyst at LendingTree, stated that the choice "speaks to the fact people may be seeking more long-term financial assistance."

The average annual percentage rate of new cards offered by the top 100 retailers in December was 32.66%, an increase from 27.7% in 2022, as per the Consumer Financial Protection Bureau. While many short-term BNPLs do not charge interest, longer-term loans do, and their rates can be comparable to store cards.

Some credit card APRs are not decreasing, while egg prices may soon reach record highs, according to a supplier. Biden's student loan forgiveness "Plan B" is in its final stage, as an expert predicts.

BNPL has been popular among younger shoppers, which is evident in their payment choices.

According to Lending Tree, 59% of Gen Zers and 51% of millennials prefer buy now, pay later (BNPL) over retail store credit cards, while 38% of Gen Xers and 22% of baby boomers prefer BNPL.

""Younger Americans were the primary drivers of the growth of 'buy now, pay later' phenomenon, according to Schulz," he stated."

Experts advise considering the cost of carrying debt when choosing a payment option for holiday purchases this year.

How store cards and BNPL work

Retail store credit cards and BNPL loans operate differently.

A retail store credit card is a long-term, revolving line of credit provided by a bank partner to entice new users with discounts on their first card purchase or financing deals. The card may also be linked to the retailer's loyalty program, offering bonus rewards to cardholders.

A buy-now, pay-later loan, which is issued through a merchant's partner, divides the total cost of a purchase into installment payments over a set period. Some providers offer longer repayment periods and charge interest. Users can have multiple purchases with the same BNPL provider at once, but those may be treated as individual loans with their own repayment terms.

If you choose either payment method, ensure that you pay off the balance on time to avoid penalties such as fees and interest.

Your credit history can be impacted by a retail credit card, as it is reported to the three major credit bureaus: Equifax, Experian, and TransUnion.

In the past, BNPL loans were not visible to credit bureaus, but now AfterPay, Affirm, and Klarna are among the providers reporting some BNPL loans to credit bureaus.

Retail store credit cards are easier to qualify for compared to other credit cards, as banks have been tightening credit card approval requirements, according to Schulz.

In the third quarter of 2024, some banks have tightened their credit card loan lending standards, lowered credit limits, and increased minimum credit score requirements, as per the Federal Reserve.

Schulz stated that the banks' response to increasing delinquencies, debt, and economic uncertainty is the reason for the current situation.

BNPL can also be relatively easy to apply for and qualify.

According to Ted Rossman, an industry analyst at Bankrate, the increase in buy now, pay later is the primary factor behind Americans decreasing the number of store cards they open.

'Consider the total cost of ownership'

The holiday season is here, a busy time to purchase gifts for loved ones. If you're in a tight budget, Rossman suggests considering the "total cost of ownership" before choosing between a retail store credit card or a BNPL.

"Depending on how you use them, these payment methods can be beneficial, but could also lead to debt and overspending," he stated.

BNPL can be challenging because you can have multiple loans running simultaneously, and the costs can accumulate, Rossman advised. It is crucial to monitor your pay-later loans and ensure you can withstand the automatic deductions.

If you can't pay off a retail card purchase at the end of the statement period, any discount, reward or perk you receive will be overshadowed by the interest you'll owe on the outstanding balance, according to Schulz.

Schulz stated that financially, it doesn't make much sense to pay 30% interest to save 15 or 20%.