Store cards "a complete scandal"

The sky-high interest rates charged on store cards makes them "a complete scandal" for customers who fail to clear their balances before charges start racking up on their purchases, market analyst Moneyfacts said this week.

It is warning consumers considering taking out store cards to take advantage of upfront discounts to only do so if they can pay them off straight away.

Rachel Springall at Moneyfacts said: "Store cards can are a complete scandal for customers if they don't pay off the balance as soon as they have made their purchase.

"This is because these cards have extortionate interest rates, with the majority of store cards charging around 29.9%."

Huge borrowing costs
Based on a typical interest rate of 29.9%, the total cost of buying a £50 coat using a store card would spiral to £55.71 if you stuck to £5-a-month minimum repayments and took a year to pay it off.

A £450 washing machine, meanwhile, would take a massive 12 years and seven months to pay off at the minimum repayment level and would cost you a total of £688.29.

"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," Springall said.

Cheaper options
While store cards typically charge interest at 29.9%, many credit cards offer a much better deal.

If, for example, you want to spread the cost of a purchase, you can apply for a card that charges 0% on new spending.

Top cards of this kind include those from Yorkshire Bank, Clydesdale Bank, the Post Office and Virgin - all of which offer between 24 and 26 months at 0% before starting to charge interest at 18.9%.

And if you can afford to pay your balance off in full each month, then it may be worth paying an annual fee to take out a cashback credit card that rewards you for spending instead.

Cards of this kind include NatWest cash back plus and American Express Platinum Cashback.

"Using a cashback card for purchases is a wiser option for consecutive spending, particularly for more pricey goods," Springall said.

"But if shoppers are mainly focused on a longer-term repayment, then they should consider an interest-free credit card instead."

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