The offer of a store card for your favourite store can be tempting and may offer opening discounts, invitations to special events (encouraging you to spend money in the store, of course) and the familiar If you take out the card today, youll get 10% off your purchases. It wont take very long; we can fill the form in now. You may as well take advantage of the offer and get your discount at least. You know how it goes and yes, there are some things youd like and the discount is worth thinking about. Before you know whats happening, youre giving details of your current account etc., etc., etc.
Its a familiar scenario. Over 40% of people who sign up in this way had no intention of doing so when they entered the store, according to the Office of Fair Trading, and yet they may well make a major purchase.
This isnt a problem if you have the money available to clear the balance within the interest free period, which can be from 35 to 55 days, in most cases. However, if youre unable to meet this time-limit you need to be aware that the interest on the outstanding balance can soon mount up.
The Consumer Credit card act sets down regulations for any loan under 25,000. Whether or not a total overhaul of these rules is necessary is under consideration.
Data provider Moneyfacts provide some enlightening information regarding the variation in store cards interest rates. John Lewis, which includes Waitrose, has an APR of 13% and Marks & Spencer offer 18.9%, whereas Debenhams and Comets Timecard are currently charging 28% and 29.9% respectively.
Before you sign up to one of these cards, take time to consider:
The discount may be a good deal and if there is a purchase that you are seriously considering anyway and you have the money to fund the purchase within the interest free period.
What is the APR rate on this offer? How much will you be charged on the remaining balance?
There may be an interest free period. How long does this last and when it ends, what rate will be charged?
Payment Protection Insurance will be offered. Check how much this is going to cost and what benefits are offered. This is an option but could prove a blessing under some circumstances, such as illness or redundancy. Read the agreement carefully to find out more.
Remember that youll need to budget carefully for store card purchases its easy to overspend.
You dont need to sign there and then. Take the agreement away and check everything, including the interest free period, APR, default and late payment penalties. Ask questions until youre satisfied you fully understand everything.
The Office of Fair Trading endorses the above advice. They also advise that you compare the store card with other payment methods.
Dont be hassled into taking out a card you dont want by some pushy person who doesnt really care whether or not youre getting whats right for you, as long as they get their commission for signing you up!
Remember, as with credit cards, the statements come in monthly. Keep track of your spending. Credit cards with low APRs are, in general, a better deal than store cards, according to the majority of financial experts.
Take care and weigh up all the options.
According to Martyn Saville, senior researcher for Which?, those who are only able to make the minimum monthly repayments on the type of credit could be set to find strains on their day-to-day finances increasing as providers charge high levels of interest for outstanding balances. He commented: "you should only take out a store card to get a discount if you can repay all the money when you get your first statement, as this means you avoid paying any interest. If you don't plan to do this, avoid taking out store cards altogether."
"Consumers should be assessed for credit risk in a realistic way that truly reflects their existing borrowing patterns and overall financial status. Consumers should also not be unduly pressurised or incentivised to take on additional debt, be it through marketing [or] unsolicited credit limit increases," Mr Saville added. The consumer watchdog representative added that it is the onus of financial suppliers to "always lend responsibly".
He also claimed that those who fail to pay off their store card bill in full by the time they get their first statement could end up being required to pay more than they had saved on the initial offer which had at first prompted them into taking out the card. The company indicated the annual percentage rate (APR) of 29.9 per cent on a store card issued by GE Capital Bank - used by the likes of Burton and Dorothy Perkins - compared with an APR of 6.8 per cent on more competitively-priced credit cards.
However, the outcome of a competition commission inquiry was reported to have increased the public's awareness about the pitfalls of using store cards. Mr Saville pointed out that credit providers charging a high rate of interest are now required to make their customers aware that more competitive borrowing options are available to them, with a cheap personal loan being one such possible choice. However, he added that Which? is now looking to get credit suppliers to use "illustrative scenarios" indicating the impact that only consistently making minimum repayments would have on consumers' finances.
In related news, Britons have recently been advised that only paying off the minimum amount on credit cards could lead to them facing an increased "debt sentence". The warning comes after findings by uSwitch indicated that some 3.5 million consumers could take up to 30 years to finish making repayments on their credit cards by only reimbursing the lowest amount required.
However, these people put in a little more money each month they could see their "debt sentence" reduced by 15 years and save a total of 5.5 billion pounds in interest. Mike Naylor, personal finance expert for the price comparison website, reported that with credit cards accounting for 54 billion pounds of the country's personal debt of 1,325 billion pounds, borrowers could be set to complete paying off their mortgage before they do so on their plastic cards, "despite the huge disparity in sums borrowed". His comments follow reports that Barclaycard and M&S Money have lowered the minimum amount payable to less than 2.5 per cent, a move Mr Naylor suggested has "little justification".
Both Michael Challiner & Abbi Rouse are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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