Retailers have been pushing store cards for years, extolling their membership benefits and exclusive offers, but they’ve not always been as forthcoming about eye-watering representative Annual Percentage Rates (APRs) of up to 29.9%
The reality is, if you accrue a balance on a store card you’ll be charged interest which could negate any initial discounts you were offered.
So are store cards all bad? Are there any better options? Here’s a look at how to make the most of your money when you’re out shopping.
Using the right card
Shoppers could be saving as much as £141 a year in interest by using the right cards to make purchases, according to MoneySupermarket research.
For example, spending £500 on a Burton or Dorothy Perkins store card at a rate of 29.9% would cost you £141.07 in interest over the course of a year, with average monthly minimum repayments of £5.34.
These kinds of rates aren’t exclusive to the Arcadia Group. Homebase’s store card offers the same representative APR as Burton and Dorothy Perkins and New Look offers a rate of 28.9%.
It can be far cheaper to use a credit card instead of a store card. For example, the Marks & Spencer credit card has a representative APR of 15.9% - around half that of a typical store card, and it can be used to shop anywhere.
What’s more, the M&S card offers a 15-month interest-free period on purchases.
So, if you take your Marks & Spencer credit card and spend that same £500 at Dorothy Perkins using the card, you could save £141.07 in interest and even get £2.50 in M&S vouchers.
Who uses store cards?
MoneySupermarket polled 2,298 people and found more than a third (36%) said they use a store card.
The majority (60%) of these people said they pay off the card each month while a sensible 42.6% of all respondents said they weren’t interested in store cards at all.
It’s easy to see how people are lured in by store cards though, with stores such as New Look offering 20% off your first purchase using the card and others like Debenhams offering a £20 voucher for signing up.
A contented 12% of voters in our poll said they signed up for a card just to get the initial perks, but then never used the card again.
Using a store card
Using a store card wisely and paying it off in full each month can help to boost your credit score, but missing payments or applying for a number of cards in a short space of time can damage your credit score.
So, make sure you pay off the balance each month and, if you’re looking to take advantage of initial store card discounts, don’t sign up for several within the same shopping spree. Instead try to spread them out over a longer period.
Be sure to read the small print before signing up for a card and, if the card is clear of its balance and no longer being used, it makes sense to close it down to prevent any possible fraud on the account.
Worth shopping around
Kevin Mountford, head of banking at MoneySupermarket said: “Shoppers using a store card to buy now and pay later won’t be too surprised that it is a costlier way of paying for purchases. However, they may not be aware of the huge savings to be made just by shopping around for other options for their purchases.
“An interest-free purchase card can be a great alternative for people who have a big purchase coming up and need some extra time to pay it off.”
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.