Trouble in store for borrowers

Rates on store cards have climbed by one per cent in the past six months with the most expensive now charging more than 30 per cent to borrowers, according to research from MoneyExpert.com.

Average rates on store cards have climbed to 25 per cent despite recent criticism by watchdogs at the Competition Commission which blasted providers for making "excess profits". Those from Principles and Oasis have both been hiked by at least 4%, and now have APRs of 28.9%.

Though some store cards offer worthwhile discounts at the point of purchase, the most expensive half of the market charges an average APR of just over 27%. That is more than one and a half times higher than the average credit card currently at 16.9%. Only one store card, from Fortnum and Mason, boasts an APR which at 15.3% is below the credit card average.

Looking at the worst offenders, the Creation Account Card that can be used across a range of stores including Sainsbury's, Woolworths, JJB Sports and Selfridges charges an incredible APR of 30.9% for payment other than by direct debit. Burton's store card charges 29.9% APR on payment by any means.

Sean Gardner, Director of MoneyExpert.com, said: "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 10 were still clearing Christmas debts incurred 12 months previously. If any of those debts were on store cards the interest alone could have been huge."

Offers on store cards include prize draws, previews, and cardholder discounts. Some cards such as those with B&Q and Coast offer extended interest free periods as reward for high levels of expenditure. The Coast card offers 0% for six months if £199 is spent in one transaction and the B&Q card offers three months interest for a purchase of over £500.

These offers, though, don't compare well with those from credit cards, with 64% of that market offering 0% deals on purchases for periods between 3 and 12 months. The Barclaycard Breathe Mastercard for example offers 12 months interest free on new purchases. Its APR after that period is also only 12.9%, almost half that of the B&Q card at 23.9%.