Christmas spending on store cards costs consumers £2.8bn

Using store cards for Christmas shopping will cost consumers £2.8 billion in interest in the next year alone, according to research by uSwitch.com. This is £892 million more in interest charges compared to those using a credit card.

Store cards are widely used in the UK. There are 13.4 million accounts which carry an outstanding balance of £2.17 billion in total. This balance is subject to an average APR of 26.34%, 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 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.”

It’ll be costly, this Christmas

Consumers are set to spend an average of £863 this Christmas. However, if all purchases are made using a typical store card they will also pay £179 in interest over the next 12 months, compared to just £123 on an average credit card. The additional £55 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.

A DVD player bought on QVC for £220 using a store card, could actually end up costing £362.10.

A suit bought in Burtons costing £150 using a store card could actually end of costing £233.98

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.”