Catalogue credit: The pros and cons

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From big ticket items to clothes or other essentials, catalogue credit allows shoppers to buy without the need for a lump sum. While the ability to spread payments can be a real boon, catalogue credit can have its downsides, so before you buy, here's what you need to know.

How does it work?
The major catalogues such as Freemans, Littlewoods and K&Co offer everything from shoes to homewares and TVs to baby clothes. While you can pay outright, many people choose to take advantage of the credit option, which means you can spread the cost with fixed payments over weekly or monthly instalments. Most offer an interest free period of between three and 12 months, after which interest is charged on those items that are not fully paid off. Similar to a loan, missed or late payments may result in charges being added to the account.

What are the benefits?
The advantages are obvious - if you need an item, say, a new washing machine or TV, you don't need to find the full amount, but can spread the cost over as much as two years, keeping monthly or weekly repayments low and affordable. Take full advantage of the interest free period by repaying the whole amount before the term is up, and you'll have got your credit for free. For many, this provides a much better option than credit card borrowing or an extortionate payday loan, particularly if it's a must-have or big ticket item.

What's the downside?
As tempting as interest free spread payments may be, it can be easy to get into further debt with catalogue credit. If you don't repay the full amount by the end of the interest free period, you're liable to be paying a high interest rate of as much as 30 per cent APR, often more than a credit card, overdraft or personal loan. That means that if you can't pay it off during the interest free period, you're likely to pay far more than the value of the items. And though most people start catalogue shopping with just one or two items, it's easy to fall into the trap of buying more and more, and finding your regular payments going up and up. Furthermore, like any borrowing, if you are late or miss a payment, it will affect your credit score and potentially hinder future borrowing from other lenders.

Many catalogues will try to get you to buy insurance on your credit so that should you fall ill or lose your job, your repayments are covered, or if the item is damaged. Yet your home insurance may already cover accidental damage, and if you are in full-time employment, you will likely receive redundancy pay or sickness cover that will allow you to keep up with repayments or pay off the whole balance anyway.

Think carefully...
There may be other ways in which you can buy the items you need more cheaply. Do some research and check whether you're getting a good price. If you can buy it cheaper elsewhere, either online or in-store, can you wait and save up the full amount? Similarly, check whether you can borrow the cash more cheaply. If you know you're not going to be able to repay the full amount before the end of the interest free period, you may find that a credit card that offers a longer interest free period, or at the very least, a lower interest rate, or perhaps a temporary overdraft facility provides a better option.

Lastly, don't be tempted into buying items that you don't really need this way. Luxury items are just that, and unless you can be sure you'll keep up the repayments, you could end up with a mounting debt problem.

Have you got into trouble with catalogue credit? Leave your comments below...
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