Be aware of store card pitfalls
MoneySupermarket warns shoppers to look beyond initial promotions when choosing a credit card in order to avoid falling into store and credit card traps.
The comparison site examined interest rates across a variety of retailers' credit and store cards, and reveals how shoppers can make the biggest savings by looking beyond introductory offers and understanding the small print.
The representative interest rates on store cards analysed by MoneySupermarket ranged from 19.9 per cent to 29.9 per cent APR. This means that a shopper could accrue £141.07 in interest over the year if they make £500 worth of purchases on a Burtons or Dorothy Perkins store card at 29.9 per cent representative APR and pay off just the minimum amount each month.
However, some retailer issued credit cards can provide consumers with a better way to pay for their shopping. The APRs tend to be lower than on store cards, and some even offer interest free periods and rewards for purchases.
The Marks & Spencer credit card, for example, has a representative APR of 16.9 per cent although purchases are interest free for the first 16 months. Cardholders also receive on-going rewards no matter where they shop - shoppers receive 1 point for every £1 spent at M&S, and 1 point for every £2 spent elsewhere. Every 100 points earned is worth £1 in Marks & Spencer vouchers. Although many store cards also offer on-going rewards, these are generally limited to the retailer or group of retailers owned by the same parent company, and so can't be redeemed each time your card is used.
Some store cards offer introductory deals which can be worth taking advantage of if you can afford to either pay off the full amount at the end of the period. The New Look Store Card for example, offers customers 20% off their first purchase when signing up to the card, while the Homebase Store Card will give you £60 worth of vouchers straight away, which can be a very tempting offer.
Kevin Mountford, Head of Banking at MoneySupermarket, said: "It is easy to see why it can be tempting to open a store card, as the introductory offers that come with these can really help you save on the day of purchase. However, shoppers should be wary of the high interest rates that come with store cards, which will negate the advantages if the balance is not repaid in full.
"Before signing up for a new card think about how you will use it, as many credit card deals will bring better longer-term benefits than store cards. For example, a credit card is a better option for those who want to spread the cost of a big purchase, as you can take advantage of one of the deals offering an interest-free period on purchases. In addition to these promotional offers, many of these cards also offer on-going rewards, which can help make your money go further. However these cards should also be used responsibly: Shoppers need to ensure they pay their balance off before the interest-free period ends, and that they aren't late making a repayment so as to avoid being hit with a late fee.
"Like with all significant purchases, it is best to shop around when choosing a credit or store card too. For some people, a store card can be a good option, particularly for people who haven't used credit before as you will generally be given a low credit limit and be able to build up your credit rating if used correctly. However, don't just be lured by discounts at the till, think about what is best suited to your needs and always read the small print, otherwise you may end up paying far more in the long term than your initial item cost!"