Trouble Galore For Store Card Fans
Monday, November 10th, 2008
As the festive period approaches, many consumers may be tempted to put a few purchases on a store card. However, Money Expert has warned that doing so could leave their finances with a nasty hangover in the new year.
Indeed, it noted that the most expensive store card is now charging borrowers more than 30 per cent annual percentage repayment (APR), meaning that people may do better to pay for presents with cheap loans or credit cards if they are short of cash in the run-up to Christmas. The independent advisers probe into the state of the store card market comes after a critical report by the Competition Commission, which said that many providers were making “excessive profits” on the back of unfavourable credit card rates.
It noted that in recent times, both Principles and Oasis store cards have been hiked by four per cent, taking their APRs to 28.9 per cent. Money Expert warned that the top half of the market offers an average APR of over 27 per cent, more than one a half times more expensive than typical credit card rates, which stand at 16.9 per cent. Meanwhile, only one store card - from Fortnum and Masson - was found to offer rates lower than standard credit card APRs.
After being hit by larger than expected store card bills in the wake of Christmas and new year celebrations, consumers could find that their ability to manage other areas of financial commitment comes under strain as 2009 gets underway. Areas of difficulty could well include keeping up with mortgages, credit card and personal loan rates.
Indeed, Sean Gardner, director of Money Expert, warned that people need to be alert to the large repayment responsibilities wrapped up with store cards.
“Store cards can be a useful way of qualifying for instant discounts but when it comes to borrowing they are a complete rip-off. The fear must be that with other forms of credit running dry, desperate consumers will be tempted into expensive deals as a last resort for Christmas. As soon as the interest-free periods expire, store card users will face huge APRs. Many will plan to pay it off but our research this time last year showed that one in ten were still clearing Christmas debts incurred 12 months previously,” he said.
The website noted that many cards will attempt to lure people in with prizes, discounts and previews, in addition to zero per cent APR offers for limited periods.
However, it explained that in the main, these still do not compare favourably with credit cards, 64 per cent of which boast zero per cent periods lasting between three and 12 months. So too, with credit cards, APRs after this period are substantially lower, the group claimed.
For those who have been caught out by rising debt levels as cheap credit has dwindled, taking out a debt consolidation loan may prove an appealing way to get finances back on track. Indeed, consumers may find themselves struggling to clear off debts racked up over the summer after Alliance & Leicester warned that store cards cost consumers considerably during the holiday sales.
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During their attempts to reduce pressure on their short-term spending, consumers should look to make sure that their capacity for long-term financial management does not come under unnecessary strain.
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