Store Card Shopping This Christmas To Cost Consumers £2.8 Billion In Interest
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Store cards are widely used in the UK. There are 13.4 million accounts which carry an outstanding balance of £2.17 billion[2] in total. This balance is subject to an average APR of 26.34%[3], which means store card holders are paying 62% more interest than that charged on the average credit card (16.25% APR).
Mike Naylor, personal finance expert, at uSwitch.com says: “People are typically lured into store card „deals‟ at the checkout because they will get a small discount on the purchase being made. In most cases, this discount will be completely negated by the high levels of interest incurred by those who do not pay the balance off in full every month. More importantly, a busy checkout in a department store is not the best location to allow people to make an informed financial decision and read the small print before signing up. This could explain why there are almost 16 million[2] of these cards in circulation costing consumers anything up to 30% APR.
“In April this year, the Competition Commission announced that all store card providers had to print a warning on statements if they charged an APR higher than 25%. This doesn‟t change the fact that providers are still charging inflated interest rates and that cards are still being sold by shop assistants who, in many cases, do not have a clue as to how much these cards actually cost. The number of these cards in circulation has almost doubled over the past five years which is why consumers really need to wake up to this money trap.”
Consumers are set to spend an average of £863[1] this Christmas. However, if all purchases are made using a typical store card they will also pay £179[1] in interest over the next 12 months, compared to just £123[1] on an average credit card. The additional £55[1] wasted on interest could be put towards something much more exciting such as the Apple iPod nano, a designer handbag or the Christmas food and drink.
Every purchase costs more:
- A Playstation 3 bought in Argos for £349.97 using a store card could actually end up costing £611.28[5].
- A DVD player bought on QVC for £220 using a store card, could actually end up costing £362.10[5].
- A suit bought in Burtons costing £150 using a store card could actually end of costing £233.98[5]
Consumers who already hold store cards should switch to a credit card with a combination of 0% on balance transfers and new purchases. This will allow them to transfer existing balances and continue their Christmas shopping without forking out the extra interest. Alternatively, the American Express Platinum Money Back credit card which offers 5% cashback on all new purchases for the next three months is a great way to earn anything up to £200 while shopping.
Mike Naylor concludes: “People tend to get carried away with Christmas spending; we just hope they seriously look at how much more store cards will cost them and ensure they use the best deals available. Ultimately, these cards are generally an extremely expensive form of credit and consumers should consider the long term costs carefully before using them.”
1 Store card customers could pay £2,860,790,360 in interest over the next 12 months compared to customers that use a standard purchase APR credit card, paying £1,969,123,720. There are 15,934,000 stores cards in issue (APACs). The average Christmas spend in 2006 was £863 (Credit Action). If the minimum store card repayment (4.3%) is made on £863 and the average store card APR (26.34%) is applied over the next 12 months the consumer will pay £179.54 in interest. £179.54 (interest) x 15,934,000 (store cards in circulation) = £2,860,790,360. On the average purchase credit card (16.25% APR) the interest applied to £863 over 12 months assuming the average minimum repayment (2.6%) is made = £123.58. This is £55.96 less than the interest applied to the average store card. £55.96 (interest) x 15,934,000 (store cards in circulation= £891,666,640. This is £891,666,649 less than the interest paid on a store card over 12 months making the average minimum repayment (2.6%).
2 APACs – The way we pay 2007
3 uSwitch.com analysis shows the average purchase APR is 16.25% and the average store card APR is 26.34% - this is 62% higher.
4 PWC Precious Plastic - November 2007.
5 uSwitch.com analysis based on the minimum repayment being made (4.3%) each month.