Store cards popular again as credit runs dry
08 December 2007
I don’t know about you, but I haven’t had any letters from credit card companies for a while. In the current financial climate lenders are tightening their belts and looking to cherry-pick the best (i.e. safest) borrowers and it's getting increasingly difficult to get credit.
So, this week, I spied with interest the news that store charge cards are becoming popular again (with over two billion pounds owed on them in the UK!), as a source of “easy” credit. However, these days there’s no such thing as easy credit, so what sort of deal are they actually offering to the consumer?
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Store charge cards (not to be confused by store-associated credit cards) have traditionally been associated with very high rates of interest (25% APR not being uncommon, with some as high as 30%). They tend to lure in customers with interest-free start up periods and discounts. They’re also easy to obtain and often targeted at younger shoppers (studies show that almost half of under-25 year olds are still paying off credit card debts from Christmas 2006).
Put all this together and it isn’t difficult to see why many consumer experts are extremely wary of store charge cards. With this in mind, what sort of deals are out there, and how can they be used to any sort of advantage to the consumer? For starters, as a replacement for a high street credit card, they score poorly. Most commentators agree that credit cards represent a cheaper way of borrowing and that a store card is best used as a charge card you clear every month.
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Of course, many people might get a store card with that intention, but can they resist that extra bargain that they’ll “pay off by Easter?” This week The London Evening Standard did some number-crunching on how much you’d end up paying if you only paid off the minimum repayments on a store card, which made for sobering reading. For example, a Playstation 3 (price: £349.97) bought on an Argos store card (APR %27.9) would end up costing over £600!
If you clear your account and don’t incur the big interest hit you can then take advantage of the special offers, such as Loyalty schemes, 10% discounts on initial purchases and card-holder only promotional events. Pundits would warn that these benefits, however, need to be weighed against the risk of succumbing to the temptation of using the card for credit!
So, the consensus by the experts seems to be treat with caution, check out all the facts and don’t be taken in by a hard sell. Use the cards tactically, figure out what you can afford and have a less debt-free Christmas!
SaveBorrowSpend Philippa Adam
