The Pros and Cons of Store Cards

This article first appeared early 2005. Have rates got better? Have alook at what we said in January 2005.

Store cards, essentially credit cards that can be used in the shop they are from, have long come under fire from consumer groups, MPs and watchdogs. They are among the most expensive ways to borrow; some cards have interest rates approaching 30 per cent – twice the typical credit card rate, and five times the Bank of England base rate. But they remain popular with shoppers, attracted by the cards’ incentives, bonuses and money-off offers. More than five million new cards were taken out over the Christmas period in 2004.

Store cards typically have low minimum repayments, which can seem attractive. However, repaying only the minimum each month can prove ruinously expensive. It can take between 40 months and 157 months – 13 years – before a debt of £200 is cleared, according to the latest research For example, if a cardholder spends £200 on a House of Fraser Recognition card and makes only the minimum monthly repayment (the higher of four per cent or £4), with an interest rate of 29.3 per cent, it would take 74 months to pay off the debt. It would also cost £163.42 in interest, making a total amount repayable of £363.42.

In addition, payment protection insurance is often pushed alongside the card, sold on the promise that it will cover outstanding repayments if the customer suffers a financial crisis triggered by illness or unemployment.

However, the policies often impose very high charges and clauses in the small print can mean they don't pay out when needed. The insurance is sometimes sold to people who would not qualify for cover – such as seasonal workers or those with particular chronic illnesses.

So are the benefits of the main cards worth the high interest rates?

Argos and Homebase

Both cards have similar terms. The interest rate is 25.9 per cent. The minimum repayment is £2, or three per cent, and there is an interest-free period of up to 59 days.

Argos cardholders who spend at least £195 have the option of paying nothing for six months.

Homebase cardholders who spend more than £100 may pay nothing for three months, while those who spend more than £1,000 have the option of paying nothing for 12 months. But there are catches. If the debt is not repaid by the end of the term, borrowers face big interest charges. For example, anyone who borrows £1,000 then fails to repay it within the agreed 12-month period will see the debt spiral to £1,259.

Cardholders receive points for spending money on the cards. When at least £500 has been spent, they are sent reward vouchers, which can be redeemed against future purchases.

Topshop/Topman

At 29.9 per cent, this is one of the highest interest rates on the market. It has an interest-free period of up to 56 days. The minimum repayment per month is four per cent of the outstanding balance, or £4, whichever is greater.

People who take out the card in-store receive ten per cent off their first purchase. Those applying online are given a £5 voucher. Cardholders are sent details of events and promotions.

The card can also be used in Burtons, Dorothy Perkins, Evans, Bhs, Miss Selfridge, Wallis, Principles and Warehouse.

Marks & Spencer

With an interest rate of 18.9 per cent, this is among the more reasonably priced cards on the market.

There is an interest-free period of up to 55 days. The minimum monthly repayment is three per cent or £5, whichever is greater.

Customers earn one point for every £1 spent and each point is worth a penny. This means cardholders would need to spend £100 to save £1 on future purchases. Regular promotions give customers the chance to earn bonus points on selected goods.

Four times a year, the company sends to cardholders vouchers and personalised discount offers with a face value of £40million.

House of Fraser

The Fraser card has a high interest rate of 29.3 per cent. There is an interest-free period of 56 days. The minimum repayment is four per cent, or £4 a month.

Cardholders receive three points for every £1 spent. The points are exchanged for vouchers that can be used in Fraser stores.

Customers would need 1,500 points for a £15 voucher. This would mean spending a minimum of £500.

Debenhams

One of the highest interest rates at 29.9 per cent, making it potentially one of the most expensive ways to borrow. The minimum monthly repayment is £4, or four per cent. There is an interest-free period of up to 56 days.

Cardholders receive invitations to sale preview evenings and money-off vouchers. There are customer privilege weeks when cardholders are given discounts.

John Lewis

At 13 per cent, this is one of the lowest interest rates on the market. The minimum monthly repayment is also higher than most at £5 or five per cent, which means customers are encouraged to clear their debts.

There is an interest-free period of up to 56 days. Benefits include invitations to in-store events and discounts when buying online. The card can also be used at Waitrose.

B&Q 'You Can Do It' card

The interest rate is 26.8 per cent with a minimum monthly repayment of £4, or four per cent.

There is an interest-free period of up to 56 days. Cardholder benefits include regular discounts and special offers in-store. The B&Q card may also be used in a number of other stores including Comet, Woolworths, Interflora and Next.