Store cards are a convenient way of purchasing goods and services; this allows consumers to buy electrical goods now and pay later. Most large retailers offer cards but they all have different terms and conditions. Interest payments, loyalty points and store discounts all vary extensively so it is important to check the fine print.
Advantages of Store Cards
- Store discounts. Consumers that sign-up for a store card tend to enjoy greater discounts than other shoppers.
- Loyalty points. Retailers reward those who use cards for clothes shopping and the purchase of electrical goods with loyalty points. For example, the House of Fraser rewards store card customers with a £15 voucher for every £500 spent.
- Interest-free periods. Consumers that use their cards for clothes shopping and the purchase of electrical goods regularly enjoy an interest-free period. Offers vary heavily between retailers.
- Spread the cost of buying. It isn't always possible to buy things with money held in a bank account. Access to store card allows consumers to make purchases when they wish to.
- Convenience. Making a payment with a store card is more convenient than paying in cash.
Disadvantages of Store Cards
- High rate of interest. According to research by uSwitch.com, the average rate of APR on a store card is 24.3 per cent. The study found that 19 card providers charged customers over 25 per cent on outstanding balances.
- Minimum monthly repayments. Just like credit cards, store cards allow consumers to make the minimum monthly repayment on outstanding balances. The Competition Commission found that only 43 per cent of customers settled their account balance in-full.
- Hidden fees. Many cards charge users late payment fees or fail to offer any interest-free period at all.
- Personal debt. The high rate of interest on store cards quickly builds personal debt and can even create serious money problems.
- Impulse buying. Cards tempt consumers into unnecessary clothes shopping and the purchase of electrical goods.
- Poor deals. Whilst large retailers offer a wide range of items, consumers can only use a store card to purchase items from that one place. This can cause consumers to make poor choices in their attempt to accrue loyalty points.
- Bad credit. Those that have built personal debt may find that monthly repayments aren't affordable. Bad credit will be registered at credit reference agencies making borrowing money more difficult in the future.
A store card is a convenient way for consumers to go clothes shopping or purchase electrical goods. However, the rate of APR is even higher than on credit card debt. They are not an efficient way of borrowing money over the longer term. It is important that the balance is settled in-full each month to avoid further interest payments and late payment charges.
Individuals that have signed-up to credit agreements prior to April 2007 should check to see whether an illegal credit card or unenforceable loan agreement is in place. This could lead to the debt being written-off, adverse credit entries being removed and an improved credit rating.
