Banking, loans and cards

Shoppers warned to beware the ‘scandal’ of store cards

Consumers looking for a bargain by using store cards to get upfront discounts risk making false economies and ending paying through the nose.

The high cost of credit that some shoppers can be hit with has been described as a “scandal”, with even relatively small purchases potentially taking more than two years to clear.

And with the run-up to Christmas set to gather pace over the next few weeks, consumers are being warned to take care if they are tempted to take out store cards.

These cards typically offer a discount at the till on purchases, but the balance is then put on a credit account, similar to how a credit card works. As with credit cards, these purchases are interest-free if the balance is paid off in time – but for people who use make just the minimum repayment each month, the costs can soar.

According to the experts at Moneyfacts, an interest rate of 29.9% on a store card can result in a simple £100 purchase taking more than two years to clear. The interest of about £30 might not be a huge amount in real terms, but it could more than wipe out any discount given at the time of purchase.

For bigger purchases, the figures are more eye-watering. A purchase of £450 will take more than 12 years to clear if only the minimum amount is paid off each month, and the total repaid would be about £1,140.

“Store cards can be a complete scandal for customers if they don’t pay off the balance as soon as they have made their purchase,” says Rachel Springall, of Moneyfacts.

“This is because these cards charge extortionate interest rates compared with other reasonable credit cards on the market. The majority of store cards charge about 29.9%.

“Shoppers are likely to be persuaded at the till to take out a store card – most likely to get a discount on the goods they have purchased – but they should never assume they are getting a good deal. As a comparison, the lowest interest rate they could achieve on a normal credit card is just 6.4%.”

Ms Springall says that using a cashback credit card is usually a wiser option, and shoppers who want to pay things off over a longer period should consider an interest-free credit card instead.

To those who do want to take out a store card, she adds: “Before committing, the most important rule for shoppers is to pay back the balance in full before interest applies, and if they have used the upfront benefits in their entirety, cut up the card and close the account.”