Borrowers storing up shelf-loads of interest

Shoppers turning to store cards to finance Christmas spending will face average rates of 25.3% if they don’t pay off their bill straight away, according to new research from Money Expert.

The independent price comparison website reveals that the average store card now charges a rate that is around 40% higher than that on an average credit card.(1)

The Platinum card from Barclaycard currently offers a typical APR of 14.9% on spending but some store cards are charge double that rate with shoppers paying as much as 29.9% on their festive spending. These store cards include the likes of Burton, Dorothy Perkins, Outfit and Wallis.

Store cards tend to impose lower credit limits than traditional cards, typically starting at £250. Anyone spending even this amount, however, on a card charging 29.9% would rack up interest of around £75 if they didn’t clear their debt by next Christmas.

Pierre Williams, Head of Research, MoneyExpert.com , said: “Taking out a store card to pay for your Christmas shopping is madness. The rates that store cards charge are nothing less than extortionate.

“They’re too easily offered and the worry is that they’ll be a last resort for those unable to source credit elsewhere. It’s these people who face being unable to repay the debt with potentially huge interest bills as a consequence."
 
Experts estimate there are currently around 13.2 million store card accounts in the UK, with each account averaging an outstanding debt of £156.(2) This level of debt would see store card users collectively racking up interest at a staggering £1.4 million a day.

Pierre Williams added: “There’s some small relief for consumers that stores have this year resisted the temptation to bump up rates just before Christmas. Some products, such as the Creation Account cards, have actually lowered APRs. If customers only use store cards for deals and discounts they can be beneficial. It’s far too easy to use them for borrowing, however, and doing so can have painful consequences."

Many stores offer introductory deals such as 10% discounts on initial purchases to attract customers. Others encourage customers to make big purchases with the offer of interest free credit. Cards from Coast and Karen Millen both offer 0% interest for six months to those spending £199 in one transaction. If that debt wasn’t cleared in 12 months time however, that one transaction alone would still have amassed just under £30 of interest.

MoneyExpert.com offers a unique service which enables people to find the financial products which best meet their specific needs, and which they are more likely to be successful in being accepted for. It includes exclusive research conducted by MORI, which reveals providers’ service levels. This information is married up with a financial database which lists the products suited to the customer. For the first time, people can review a product’s price, features and also the level of service offered by the provider to enable them to make a more informed choice.

Money Expert aims to demystify the complex world of personal finance, and to help inform customers of the choices available. The service can be found at www.moneyexpert.com