Word of Advice

27 April 2009

Would you like a store card?

Buy now, pay later and get special invites to VIP days. What more could you want?

You might be tempted to get a store card at your favourite shop. These cards let you buy goods on credit from the store and pay it back later, similar to a credit card. Having a store card can also get you into VIP days, give you first choice of sale items, and a discount on goods. But remember, whenever you are buying goods on credit you need to have a good look at the contract.

Revolving credit

Store cards are a type of revolving credit. This means you can keep adding more debt by buying more things up to a certain credit limit. You might even sign up for credit at a store and not realise that you are getting revolving credit rather than a traditional hire-purchase type of deal.

Store cards work a lot like credit cards but they don’t always give you as much protection as credit cards, so you need to read the terms and conditions. Look out for information about security, interest rates, and extra fees.

Using your card in different stores

If your store card can be used in different shops, sometimes this also means that the conditions on the loan are different for each shop you buy something from. You will need to check the terms and conditions for each shop. It might look convenient to use a single card, but once you have to read and remember all the different agreements you might decide it isn’t worth it.

Security

Some store cards take security over any items that you have bought with the card. This can mean that if you buy and pay off a sofa and then buy a TV, the creditor can take both the sofa and TV if you get behind on the payments for the TV. Credit cards, however, often don’t require any security, just proof of income.

Interest Store cards usually have high interest. Store cards and credit cards can be an expensive source of credit for long-term loans. If you are buying a large item that will take more than a few months to repay, you might want to look at an overdraft facility or a one-off loan instead.

Store cards and credit cards should only be used for short-term loans. If you are not paying off the loan quickly then the interest rate is really important. Making minimum monthly payments often means you pay high interest costs over a long period of time.

Sometimes stores offer an interest free period. Look at your budget to see whether you can pay the loan back before this period is up. If you can’t, then you need to look at how high the interest rate is after this period and how much interest you will have to pay.

Extra fees

Some store cards add a fee for each item purchased. Also look at how much the penalties are for defaulting (when you miss a payment). Look at all these extra costs when you are deciding whether to sign up to a store card or to buy something new with your store card.

If you are experiencing financial difficulty, get advice. Call 0508 BUDGETLINE (283 438) to find your nearest budget advice service or to speak directly to a budget adviser.

For more information about your consumer rights, visit our website or your local Citizen’s Advice Bureau.