Store cards – good value for borrowing?
1st June 2011
Store cards generally have quite a bad reputation. More than 13 million people own a store card account in the UK. However, they are known to target naive women who think that every discount is valuable. The store assistants make the cards seem so appealing. Who wouldn’t want to save up to 30% on their purchase? The sad truth is, many consumers do not know what they are getting into when they sign up for a store card account.
“Why Store Cards Are Never Good Value
In comparison to standard credit cards, store cards never provide good value for money. You have a lower spending limit than you would on a bad credit credit card, but the interest rates are typically higher. It is thought that the average APR on store cards is 25.5%, while credit cards charge an average of 16.8%. This is according to Which? magazine. The study was carried out in December 2009 and since then not much has changed.
The senior research of Which? magazine, Martyn Saville, claims:
“With APR’s of around 30%, store cards are never good value for borrowing. Our investigation into the market found it was too easy to get hold of credit and that too many retailers were offering cards either without telling the customer that they’d be credit checked or, worse still, without credit checking them at all.”
It isn’t just the interest that worries Martyn either. He goes on to state:
“That’s not to mention the lack of privacy in reading out your personal details in the store.”
Customers are usually asked at the checkout whether they would like to sign up there and then. All they need is a few personal details and you could save up to 30% on your purchase. While it may not seem very likely, there are people who could use your details against you. All it takes is a fraudster with a really good memory to record your personal details. They can then apply for other store cards and credit cards in your name.
In October 2010, the Department for Business, Innovations and Skills carried out a review of consumer credit and insolvency. They want to include a seven day cooling off period on all store cards and credit cards. An assessment of the review will be scheduled for summer 2011.
Not Everybody Agrees
While experts such as Martyn are worried about store cards, other organisations are not. The Finance and Leasing Association claims that the proposal to cap interest rates and to introduce a cooling off period is addressing a problem that isn’t currently there. The FLA represents store card providers.
The Head of consumer finance at the FLA, Fiona Hoyle, claims:
“There is no evidence of consumers being unable to manage their spending on cards. Customers are already able to change their mind about taking out a credit card. New EU regulation brought in February this year provides customers with a chance to change their mind within 14 days of taking out a card.”
Overall store cards can get people into trouble due to the high interest rates. However, there are many women who use the cards to their advantage by paying off the balance before interest is added.
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