Money News
Millions of shoppers will put the cost of their Christmas gifts on store cards this year, despite being by far the most expensive means of buying goods. The average annual rate of interest charges on a store card is 26 per cent, according to calculations from comparison service, uSwitch.com. This is 10 per cent higher than the average credit card, which is payable at16 per cent APR. In other words, shoppers using store cards are paying 62 per cent more in interest than their credit-card holding counterparts.
Mike Naylor, personal finance expert, at uSwitch.com said: "People are typically lured into store card 'deals' at the checkout because they will get a small upfront 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."
He adds: "More importantly, a busy checkout in a department store is not the best location to make an informed financial decision and read the small print before signing up. This could explain why there are almost 16 million of these cards in circulation costing consumers anything up to 30 per cent APR "
This is a sentiment echoed by financial data provider, Moneyfacts. By its calculations, if you put £384 of gifts - which is this year's average Christmas spend, according to Halifax research - on a store card priced at 29.9 per cent and paid off the standard minimum balance of four per cent, it would take eight years and 11 months to clear the debt. It would also mean repaying £360.97 in interest on top of the £384 original capital balance.
In April this year, the Competition Commission announced that all store card providers must print a warning on statements if they charged an APR higher than 25 per cent. But, despite this development, providers are still charging inflated interest rates while store 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,' says Mr Naylor. "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 who already hold store cards should switch to a credit card with a combination of 0 per cent on balance transfers and new purchases, he adds. This will allow them to transfer existing balances and continue their Christmas shopping without forking out the extra interest.
07 December 2007 © Moneyextra.com
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