Anyone know why in-store credit cards have interest rates so much higher than a standard revolving credit card? Inquiring minds want to know. Buckets
I came up with three reasons: (1) Retail cards are usually easier to get than prime bank cards. The banks offering the store cards have lower standards for granting the cards, and charge higher rates to (more than) compensate for the extra risk. (2) The kind of people who get new credit cards, perhaps under assumed names with phony SS numbers, often have a very limited view of the world. Many of them can't actually manage a real financial scam, so they set their sights on a few things they want like new clothes, stereos, television sets, etc. They apply for credit, get their toys, and then default on the cards. This is a form of adverse self-selection by credit applicants themselves, which increases the risk in issuing retail cards. (3) There is no competition in issuing retail cards. For each store, there is a single issuer. So the issuers can charge whatever they want and still issue a lot of cards. On the supply side, the stores find their profits squeezed by endless sales and advertising, and they're glad to have an independent source of profits about which few customers ask any questions.
