Steer Clear Of Store Cards
Criticism from watchdogs for high charges has failed to deter leading store card providers from increasing the cost of borrowing on their cards, which already had some of the highest interest rates on the market.
As Christmas approaches, with the likely increase in spending on all cards, consumer finance lobby groups have reminded shoppers that store cards are far more expensive than credit cards.
Many retailers, including Burton, Dorothy Perkins, Marks & Spencer and Argos have increased interest rates on store cards over the last year by an average of 2.7%. The largest increase has been by M&S Money, from 18.9% to 23.9% (up 5%), while in the same period the Bank of England base rate has gone up from 5% to 5.75%.
Sean Gardner, chief executive of finance comparison website MoneyExpert.com, says: "The advice is simple when it comes to store cards - don't use them. If you don't clear your balance at the end of the month, there are few more expensive forms of borrowing than a store card. You might be lured in by the initial offer of discounts on store purchases, but consumers should avoid the gimmicks and borrow wisely."
The Competition Commission reported in March 2006 that interest rates on store cards could be up to 20% higher than they should be, and would cost consumers £55m over the odds every year. Nearly 18 months later, and virtually nothing has altered.
The average rate for store cards is 24.3% compared with 24.6% in March 2006. These figures are based on repayments made by direct debit. For other types of repayment, rates for store cards can be as high as 29.9%. A typical credit card interest rate is 15.9%.
"Many people could be tempted to take out a store card in the run-up to Christmas," says Rob Kenley, head of credit cards at price comparison website moneysupermarket.com. "They may offer a discount or introductory offer for the purchase, but in reality people can end up paying well over the odds. Store cards have eye-wateringly inflated rates compared with the average credit card - some hitting almost 30%."
Consumers should avoid store card offers, says Paul Davies, head of money research at Which? magazine. In particular, people who feel they might not have the discipline or resources to make the full balance payment each month, should steer clear. He says: "If you make a big purchase and want the discount, taking out the card can save money. But this only works if you pay off in full before you are charged interest. You should cut up cards to avoid being tempted to spend more."
Rob Kenley went on to say: "For those who pay their balance in full each month, a cashback credit card will give money back from your expenditure."
Cashback credit cards are available from Capital One, Abbey and American Express.
The Finance & Leasing Association, which represents store card lenders such as Ikano Financial Services, and issuer of the New Look card says store card rates need to be higher as the average balance on them is lower than those on ordinary credit cards. Spokeswoman Helen Saxon said: "The typical balance on a store card is £162, compared with £750 on credit cards."
Published on November 29, 2007
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