It's easy to be tempted by a store card. The sales assistants are all trained to push them as hard as possible, and with a discount on your first purchase and invitations to special bargain shopping evenings, they seem like the smart way to shop.
However, the experts warn that they could well cost a small fortune in the long run.
DiscountsThe discounts are tempting. For example, the New Look store card offers a 20% discount off the first purchase plus additional cardholder discounts and offers. The discounts are the main reason why 36% of people have a store card in their wallet.
When we get the cards we often think we will be able to afford to pay it off within a month without racking up any interest. In fact, it's easy to get sucked into spending on them when we can't afford it, at which point we are stung with painful interest rates. Only 60% of people manage to successfully pay their store card debt every month. Meanwhile one in every 100 people have so many store cards that they cannot keep track of them.
Kevin Mountford, head of banking at MoneySupermarket.com, says: "Our findings show a large number of consumers are lured into using a store card based on the discount offer at the time. Whilst some introductory deals could be worth looking out for, the benefits on offer will often be negated by high interest rates if the card holder cannot afford to repay the balance in full."
RatesStore cards have notoriously high interest rates. In fact, according to MoneySupermarket.com they range from 19.9% to 29.9% APR representative. As a result, someone making £500 worth of purchases on a Burtons or Dorothy Perkins store card at 29.9%representative APR, would accrue £141.07 in interest over the year, if they just paid off the minimum amount each month.
The comparison site looked at the offers and rates on a variety of store cards - and the retailer-branded credit cards, and found that the credit cards often provide a far better option. Many retailer issued credit cards offer consumers a competitive interest free deal or rewards for purchases.
The Marks & Spencer Credit Card and the Tesco Clubcard Credit Card, for example, both offer cardholders 15 months interest free on purchases, plus ongoing reward points for using the card. Meanwhile, the John Lewis Partnership card offers 1 point for every £1 spent in John Lewis and Waitrose stores and 1 point for every £2 spent elsewhere. Every 500 points earned is worth £5 in John Lewis vouchers.
Mountford says: "Shoppers using a store card to buy now and pay later won't be too surprised that it is a costlier way of paying for purchases; however they may not be aware of the huge savings to be made just by shopping around for other options for their purchases. An interest free purchase card can be a great alternative for people who have a big purchase coming up and need some extra time to pay it off, and the amount saved in interest can be used towards their goods, or to pay off their card. In addition to the promotional offers, many of these cards also offer ongoing rewards, helping maximise your spend. However, shoppers should ensure they pay their balance off before the interest-free period ends and make sure they repay their bill on time, otherwise they will lose the promotional rate."
LoyaltyThe good news is that the research also showed that almost 20% of people don't have a store card because they are concerned about the interest rate. The only store-related card they are likely to have in their wallet is their reward card, which could prove the savviest option of all.
According to Standard Life's 'Financial Efficiency' research, over half of women (56%) in the UK ensure they make the most of store loyalty cards in order to save money when they spend, compared to almost two in five men (37%). Apparently the use of loyalty cards has increased, with 11% more saying they use them now than three years ago when the financial downturn began.
Because while the rewards may be shrinking, and we know we will pay for these schemes through higher prices at the till, it's still a chance to feel like we're getting something for nothing, rather than shelling out a small fortune over a period of months for something we can't even remember buying.