Don't fall into the store card trap
Shoppers in the UK could save up to £100 in interest by shopping around for the right card to pay for their basket of goods, according to moneysupermarket.com.
The comparison site examined current interest rates across a variety of credit and store cards, and reveals how shoppers can make the biggest savings by looking beyond introductory offers and understanding the small print.
Someone making £500 worth of purchases on a Burtons store card at 29.9 per cent APR, would accrue £74 in interest over the year, with average monthly repayments of £48. This rate is common among some of the leading brands including the Homebase store card and Dorothy Perkins account card, both also offering 29.9 per cent APR.
However, some credit cards can offer consumers a cheaper way to pay for their shopping, particularly those offering an interest free deal. The Marks & Spencer credit card for example, allows customers to shop anywhere and has a relatively low APR rate of 15.9 per cent - around 14 per cent lower than some store cards. This deal means shoppers incur no interest within the zero per cent purchase period of 15 months. If a shopper were to spend £500 in a Burtons store and use the Marks & Spencer card instead of Burton's own store card, they could make a saving of £74. This increases to a saving of £118 if you spent £800 in store.
Store cards can offer some great introductory deals for those that can afford to either pay off the full amount upfront, within the introductory free period, or switch to a balance transfer card. Some store cards are operated by card issuers, for example Santander so the balance transfer option may be restricted. Savvy gardeners and DIY enthusiasts might consider a product like the Homebase store card, which offers discount vouchers worth up to £60 when making large purchases. For fashion fans a card like the New Look store card offers 20 per cent off their first purchase, helping shoppers make their money go further. Shoppers should then pay the amount off in full, or switch to a balance transfer card. Shoppers taking advantage of these offers need to be vigilant and ensure they pay back their balance in time.
Kevin Mountford, head of banking at moneysupermarket.com said: "It is easy for shoppers to be lured into the idea of buy now pay later, but often these deals are too good to be true. Delaying payment and putting the cost of shopping onto a store card can often prove to be a costly way of paying for purchases, with interest rates on these cards generally much higher than on standard credit cards. Customers may well be tempted to save at the till on introductory offers such as discount vouchers. Whilst some introductory deals could be worth looking out for, the benefits on offer will often be negated by high interest rates if the card holder cannot afford to repay the balance in full.
"An interest-free balance transfer card or purchase card can be a great option for people with existing debt who need flexibility, or for those who have a big purchase coming up and need some extra time to pay it off. Again, shoppers need to ensure they pay their balance off before the interest-free period ends. Consumers also need to make sure they aren't late making a repayment as not only will they be hit with a late fee, they'll probably forfeit the zero per cent offer and start being charged interest.
"By shopping around and reading the small print before agreeing to a card at the till-point, shoppers can ensure they are clued up on the best way to pay for their purchases and avoid the long term headache and high costs of clearing their balance further down the line."