Beware of hard sell on the high-cost shop credit cards
Signing up for another piece of plastic can cost you more than the initial discount being offered, warns Roisin Burke
YOU'RE at the cash desk about to pay for your purchase when the sales assistant tells you that you could get 10 per cent off if you sign up for the shop's store card.
Well why wouldn't you? You'll get money off purchases, vouchers, access to 'special customer nights' and more, she tells you.
"I've seen this first hand," says financial adviser Liam Croke. "A woman who signed up for the card at the counter, so her purchase cost her €90 instead of €100. But with the €30 government charge on credit cards (which wasn't mentioned) it actually cost her €120."
The card could well have ended up costing her even more than that in the long run.
Calling these things store cards suggests that they're just an innocuous form of loyalty card, but they're much more than that, they're credit cards, and very bad value ones at that.
"They are incredibly dangerous," says Croke, "a debt of €1,000 at a minimum repayment rate of 17 per cent on one of these cards would take 13 years to pay off in full."
Store cards charge as much as 20 per cent variable APR -- that's twice as much as the going rates. Compare that with AIB's cheapest card, at 8.5 per cent variable APR, and Bank of Ireland's, at 9.5 per cent.
Even the lowest store card interest rate is still higher than the most expensive credit cards. The MBNA card, at a pricey 14.9 per cent typical APR, still costs less than crazy store card rates.
You can sign up without the word 'credit card' ever being mentioned in some cases, and without realising this is what they are until later. That's where reading the small print comes in.
So you'll pay off your balance on time, every time and avoid being hit by whopping charges, you tell yourself. Maybe you will, but chain stores aren't losing any money by betting against that not happening. Credit card companies make a massive €20bn a year from fees and penalties alone.
Fall behind even once on your store card payment and you're paying up to 20 per cent extra mark-up on your goods. If you spend €100 on the card, then don't pay off the balance in full, your purchase has cost you around €120, and rising, until you pay off the debt in full.
Then you're charged interest on your interest, and on your late fees and any over limit penalties. "It's a sort of compound interest sinkhole that goes on and on," says Croke. "Your initial €100 spend becomes €3,000 two years later.
"My other issue is you have clothing or furniture sales people who are selling credit cards," he adds.
The feted discounts are unbelievably meagre, as our panel below shows.
Debenhams trumpets its 10 per cent off discount on its promo leaflet, but in the much smaller print underneath you'll see that this money off is a fly-by-night sweetener that only applies for the first two days after you sign up.
After that you have to work up points that you can convert into vouchers. You get one point for every €1 spent in Debenhams, but you have to work up to 200 points before you get anything at all. Your 'rewards' then come in vouchers sent out every few months rather than instant money off.
Hefty late fees and over-limit penalties apply with most cards. Average charges are €7 for each offence and you'll pay interest on those fees also if they accumulate.
Brown Thomas, Debenhams and House of Fraser have two store card versions, one being a universal credit card usable outside their stores. That might be handy, but it's spreading your high interest credit spending further afield. You can get a normal credit card with half the interest rate.
The language used to promote cards is exuberant. "Discover a world of rewards," chimes House of Fraser, both its cards "will give you access to fabulous benefits," it promises. Words like 'exclusive' and 'special' recur a lot. "So easy, no hassle, your reward!" the Brown Thomas blurb coos entreating you to "apply today!"
Strong overtures like that are telling -- if you're getting that hard a sell on something, it's usually got a lot of potential to cost you money.
It is stunningly easy to apply for and get accepted for several of these cards, and each one you take out is subject to the €30 government levy, so having a few of them can swiftly cancel out any discounts you get.
Use a store card well and pay it off on time and you are getting up to 56 days of interest-free credit, depending on the card offer. Use it badly, and pay through the nose. "A very small percentage of people pay off all of the balance every time," says Croke.
"If you can do that, take advantage of it. But only take it on if you're absolutely confident it won't cost you a fortune in the long run."