The pros and cons of in-store credit

posted by in Budgeting

Credit cards in hand with shopping bags

Can you afford to use credit for your purchases?

According to a recent article in The Guardian, latest figures from the Finance and Leasing Association show that in-store credit agreements rose by 25% in the second quarter of 2012 compared to the same period last year.

In-store credit does exactly what it says on the tin – it’s a means to buy an item on credit and pay for it over a certain period of time. It’s called ‘in store’ because it can only be used in a particular store or group of stores. It’s credit because you take the item home on the understanding that you will pay on time until the agreement comes to an end.

For many people, using in-store credit can satisfy that ‘must have it now’ urge that we encounter daily. At some point we’ve all wanted a certain item and lamented the lack of pennies in our pockets to buy it. This feeling can grow every time we watch an advert break or flick through a magazine.

We’re bombarded with smiley, happy people, surrounded by stuff that apparently makes them smiley and happy. It can seem like everyone has what they want or need in life, except us.

Sound familiar? Then we may need to talk.

In-store credit can appear to be a viable option for people wanting to buy high end goods without having to save up. They may have too low an income to pay for something big in one go, such as a car or kitchen appliance.  There’s often an interest-free period to start with as well.

Payments spread over a long period of time…doesn’t get easier than that, right? Think again.

Buy now, struggle to pay later…

Next time you’re browsing through a catalogue, take a close look at the interest you would have to pay if you signed up for ‘Buy Now – Pay Later’ on something like a fridge or couch. Compare it to what you would have to pay overall if you saved up and bought the item outright. Those blissful couple of months of interest-free credit might not seem like such a great deal anymore.

The store has to make a profit somehow, and if you can’t hand over all the cash in one go they’ll do it by compiling interest over the months it takes for you to pay. A bed that retails at £400 on a credit agreement with 29% interest will cost you an extra £115. Think of what you could do with that cash…

What about store cards?

How many times have you been asked by the cheery clothes shop cashier if you’d like to put it all on a store card and worry about it later? A first glance it might seem like a good idea, until you take a closer look at the interest.

Like in-store credit, the store card can boast a stomach-turning 20-30% interest rate. Failing to pay the balance in full every month will also earn you charges, turning that quick spree amongst the clothes racks into a real dressing down of your purse.

If you have one of these types of agreements and you’re struggling to make the payments, then please get in touch. It could be that you need to take a fresh look at your budget.

Now we’ve got the doom and gloom out of the way, here are some suggestions for alternative ways to get the things you need. With a little creativity and a pinch of effort, you’d be surprised what you can do without having to rely on in-store credit.

1.    Cold hard cash

Let’s face it; shops would prefer your freshly-printed pound notes over monthly drips and drabs from a credit agreement.

If you’re feeling confident, have a chat with a sales assistant and see if they’ll cut you a deal if you bought the item you want with cash. At the end of the day, they want rid of the item as much as you want to buy it, if not more. Don’t be shy! At worst they’ll say no. At best, you can take your prize home and feel proud of your newfound haggling skills.

2.    Old to them is new to you

Some might shirk at the idea of second-hand furniture, but with online communities such as eBay, Gumtree and Freecycle, there’s a wealth of barely-used bargains to be had. Quite often you’ll find items that are brand new but part of a discontinued range taking up room in a warehouse. Once again, don’t be afraid to haggle- most sellers expect a bit of bartering and will often drop the price to sell the item quickly!

Always check out local notice boards too – someone in your neighbourhood might have just what you need.

3.    Going once, going twice…

Check your local paper for any furniture auctions in your area.  Many towns have at least one each month, and you can kit an entire room on the cheap. Take a friend and rent a van so you can drive your bargains home yourself (many auctions also offer a drop-off service).

Decide a limit on how much you spend and what you want specifically before you go. Police auctions have some fantastic things up for grabs, saving you as much as 90% off the regular retail price as ‘evidenced’ (pardon the pun) on the website we’ve linked to – don’t worry, everything they sell is completely legal.

Get in touch

You may have the means already to buy an essential household item – all that’s needed is a helping hand in your budget. We can help you understand where your money is going each month. With a bit of careful planning, that new washing machine could be yours – with no catches.

What are your thoughts on in-store credit? Tweet us at MoneyAware.

Rachel Connor has been with the charity for over 8 years, starting in Helpline before joining the MoneyAware team in 2012. Rach enjoys travelling, video games, watching anime, reading and creative writing in her spare time (currently writing a Young Adult fantasy series). She had a previous life as head writer on Cartoon Network’s Ed Edd n Eddy and as a copywriter for LivingSocial. She’s also written comics and graphic novels for the animated series Regular Show.

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