Christmas spending on store cards is costing UK consumers a staggering £2.8 billion in interest – 62 per cent more than those using credit cards, according to new research.
A study by uSwitch.com has found that there are currently 16 million store card users in Britain, and this Christmas alone, shoppers purchasing gifts with their favourite store card will clock up nearly £892 million more in interest than those using credit cards.
Store cards are widely used in the UK and according to uSwitch figures, there are 13.4 million accounts carrying an outstanding balance of £2.17 billion in total. And with an average APR of 26 per cent – 10 per cent higher than the average credit card at 16 per cent APR - the total amount of credit outstanding on store cards has reached £2.17 billion. In the last five years alone, this figure has almost doubled from seven million to 13.4 million.
Stores have been quick to cash in on the consumer credit craze and typically offer customers small discounts on purchases in return for opening an account at their favourite store. However, any discount offers are negated by the high levels of interest incurred for not paying off the balance in full each month, with some cards even charging an eye watering 30 per cent APR.
Mike Naylor, Personal Finance Expert, at uSwitch.com explains: "In April this year, the Competition Commission announced that all store card providers had to print a warning on statements if they charged an APR higher than 25 per cent.
"This doesn’t change the fact that providers are still charging inflated interest rates and that cards are still being sold by shop assistants who, in many cases, do not have a clue as to how much these cards actually cost.
"The number of these cards in circulation has almost doubled over the past five years which is why consumers really need to wake up to this money trap."
It is currently estimated that consumers will spend an average of £863 this Christmas, and if those purchases are being made with a typical store card, there will be an additional £179 of interest to pay over the next 12 months, compared to the £123 extra interest clocked up on a regular credit card.
And with each purchase costing more than it should, the debt soon adds up. For example, according to uSwitch, a Playstation 3 bought in Argos for £349.97 using a store card could actually end up costing £611.28.
Mike Naylor concludes: "People tend to get carried away with Christmas spending; we just hope they seriously look at how much more store cards will cost them and ensure they use the best deals available. Ultimately, these cards are generally an extremely expensive form of credit and consumers should consider the long term costs carefully before using them.”
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