It’s taken a while, but the store card penny has finally dropped
We all know that shop assistants get bonuses for signing you up to store cards, often at eye-watering interest rates that are likely to wipe out any introductory discount in mere minutes* However, it looks like shoppers of the UK have finally gotten wise to this expensive borrowing wheeze- new figures from the Finance and Leasing Association (FLA) show a considerable drop in store card spending.
The FLA has announced that spending on store cards fell by 20% over the 12 months to August 2011, bringing the total amount spent on store cards in the year down to £1.8 billion.
Of course, spending on all forms of consumer credit lending fell over the last year, as you might expect, but the slight 2% decline in credit card and unsecured loan advances shows just how far consumers are running from this particular type of unsecured credit.
Store cards often charge considerably higher interest rates than other forms of unsecured lending, including credit cards. There are an estimated 30 million store cards in circulation in the UK that can charge in excess of 30% in interest payments. Santander, which is behind a number of store cards for major retailers, recently announced a £10 charge would be made to any store card-holder that did not make a purchase in six months. Consumers will therefore need to close their account to prevent getting charged, which is one way of removing the temptation to spend.
Helen Flaxon, spokesperson for the FLA said, “For the last five years there has been a decline in the use of store cards with some stores moving on to branded credit cards. However, people are just not spending as much on the High Street. Instead they are saving up to buy that new winter coat instead of putting it on credit, like they would have done before.” Let’s just hope they started saving in the summer then…
Which! Money waded in too, “Store cards are a poor-quality financial product with huge interest rates and fees attached, so it’s not surprising that people are no longer using them to borrow.”
Perhaps the recent announcement of Nationwide’s new lower 6.2% rate for personal loans of between £7,500 and £15,000 will help out cash strapped families in the run up to Christmas instead. The low rate is only available until 1 December, and Graham Pilkington from Nationwide said: “With Christmas fast approaching, this rate is great for people looking to consolidate debt, improve their home or purchase that brand new car.” After all, if you can’t afford the Christmas you want, just get into debt for it instead.
*this could be an exaggeration