This episode of the Your Recipe for Financial Success podcast was published on 19th November 2020. You can listen again by heading to our Episodes page, or on your favourite podcast player.

In this episode, Becky, Emma and Julie explain everything you need to know about store cards. If you’re not entirely sure what the deal is with store cards, settle down with a cuppa, we’re about to bake you up a treat!

Episode Highlights

87.9 million people in the UK use a store card. The question is, do they all understand how they work?

What is a store card?

A store card is basically the same as a credit card, but you can only use it in one high street chain or a group of stores that are perhaps owned by the same company. You purchase your goodies on the card and pay for them later, with added interest.

What you need to know about store cards

  • You must be 18 to have a store card
  • When you apply for a store card, you have to undergo a credit check. You don’t have to have any credit history to be accepted for a card, though
  • It’s important to remember that store cards often have a higher interest than ‘normal’ credit cards
  • There are often special offers and discounts on offer when you sign up for a store card. Whether that is in store or online
  • It’s worth bearing in mind that store cards are often given out by sales assistants who may not fully understand the implications of what they are telling you to sign up for

Charges and costs of store cards

When you’re looking at the interest rate on your store card you need to be looking at the annual percentage rate, which is usually abbreviated to the APR. This is the cost of borrowing, for example, 28.9% APR. 

You will then be charged a minimum set percentage or fee depending on the terms of your store card. For example, 3.65% of your balance or £3.65, whichever is higher. 

You could end up paying back more than you spent on the card. Say you bought something for £100 and pay £5 back a month on a 28.9% APR rate, it would take you 17 months to pay back and therefore you will end up paying a total of £132. 

Remember, the rated on cards are variable so that 28.9% could increase over the time you are paying back the balance of your card.

What if you get in a muddle and can’t afford the repayments?

If you get in a little trouble with your store cards and can’t afford the repayments, there are a few things you can do: 

  • Call the lender and ask if you can take a payment holiday. This will pause the interest charges for a month to give you a chance to catch up.
  • Another thing that you can do is speak to Citizens Advice, because they can provide you with free impartial guidance to hopefully point you on on the right tracks.
  • Speak to a charity like StepChange. They may be able to help you sort of get out of the position that you’re in.

Check out our other delicious podcasts on our episodes page if you would like to get your teeth stuck into even more tips and information on personal finance. Don’t forget about our Facebook page too where you can ask questions and join in discussions about all of our topics!

 

Rediscover the conversation

Emma Knights 
I know everyone says we’re too early but it’s never too early for Christmas is it. I love putting the lights on the tree.

 

Becky Campion 
I hope you don’t mind; I always hate doing that job.

 

Julie Hunt 
That is the worst bit and there is that whole tinsel argument which we have in the office each year.

Anyway, today we’re going to be peeling back the truth about store cards, and it’s going to be Becky in the hot seat. We’re going to be asking you all the questions so I hope you’re ready?

 

Becky Campion 
I don’t know if I am but I’ll do my very best.

 

Emma Knights 
So, Becky, start by telling us a little bit about what store cards are?

 

Becky Campion
Store cards are quite similar to credit cards. I’ll start by telling you a really brief overview about what credit cards are, and then we’ll drill down more into store cards.

With a credit card, when you use it you essentially are buying things on credit, which means that you haven’t actually paid any money for it yet, you’ve borrowed the money to buy whatever it is that you’re buying.

Then, at the end of the month, all of your transactions that you’ve put on your credit card for that month get added up. That’s when you receive your credit card bill or your credit card statement.

At that point you then need to pay back all of the money that you’ve put on your credit card and in that month or in that time period. If you don’t make the full payment, the credit card company or provider can then charge you interest on the amount that you borrowed or the amount of credit that you have on the card that you haven’t paid back.

So that’s a brief overview of what a credit card is and how a credit card works.

 

Emma Knights 
I think we’ll have another week where we can cover credit cards in more detail, Becky.

 

Becky Campion 
I think we might need another week because this is going to be detailed enough.

 

Julie Hunt 
Let’s be honest, you’re loving it over there, answering the questions!

 

Becky Campion 
I don’t know if I am but we’ll see how we get on.

With a store card, it’s basically the same as a credit card, but you can only use it in one high street chain or a group of stores that are perhaps owned by the same company. So I’m guessing that you’ve all heard the saying ‘buy now pay later’?

 

Julie Hunt
Oh, definitely yes. There’s signs up in most shops that you go in saying that now.

 

Becky Campion
So, that is essentially a symbol of a store card – you can buy now and you can pay later. You can put it on this card and then you pay for it in X amount of months’ time or weeks’ time.

One thing about a store card to remember is that you have to be at least 18 to have one, and you have to undergo a credit check before they will hand over this piece of plastic to you.

The interesting thing about a credit check with a store card though, is that you don’t have to have any credit history. You could go in the store on your 18th birthday and ask about a store card. Although they will do a credit check on you, you don’t have to have any sort of credit history to be handed over the store card.

 

Julie Hunt
I’m guessing they’ll only stop you if you had loads of debt and CCJ’s and things like that, but not if you didn’t have any history at all.

 

Becky Campion
I didn’t know that until I was digging in to the depths of store cards.

The important thing to remember about a store card is they usually have a higher interest rate than a normal credit card. When I say a ‘normal’ credit card, I mean, the credit card that your bank may offer you. We’re going to come back to interest rates in a little while.

 

Emma Knights
What is good about store cards?

 

Becky Campion
There are a few things that are good about score cards. Once you sign up, you’re normally, and I say normally quite loosely, offered vouchers, or discounts.

They might say if you sign up for our store card today, we’ll give you 10% off your any purchases that you make in store for the next three months. That is probably quite a standard one that most of you will probably be quite familiar with.

They might also say if you sign up today, we’ll give the free delivery if you buy anything online, which is quite handy. I know I just bought something on Photobox and I was horrified at the postage costs. So, if they did a store card, it would be well worth it to get the free postage!

 

Julie Hunt
That’s some of the good things about it. But why would you not have a store card?

I used to have a Debenhams store card and I think I used to get 10% off or 5% off every time I used it, and 15% off in the coffee shop and all those kinds of things which all sound really good.

Why would you not have a store card? What’s not to like?

 

Becky Campion
One of the main reasons to be very cautious about score cards is that interest rates are usually higher than they would be on a normal credit card.

An interest rate when you’re talking about credit cards is sort of like the cost that you will pay to have the credit to make the purchases, but like I said I am going to come on to that in a little while.

Another reason that that they’re perhaps not as good as a normal credit card is that you can only use them in certain stores or certain places. Whereas with a normal credit card you can go into pretty much anywhere and they will let you use them.

The other thing to be very mindful of with store cards is that they’re often sold or given to you by sales assistants who may not fully understand what they’re telling you. They might say “you can have this store card today is really great. We can give you 20% off on your purchase today”, but they might not really fully understand the implications of what they’re telling you to sign up for.

 

Julie Hunt
That’s a really good point, Becky, actually.

 

Emma Knights
Yeah, definitely. It’s very scary when you think about it, especially when you said about the credit checks and you don’t really have to have any credit. Someone buying or taking out that card isn’t necessarily going to know anything about credit and if someone is selling it to them that knows very little as well. That sounds a bit risky.

 

Becky Campion
It sounds like a recipe for disaster. The other thing, and it’s not really a reason to be careful of them but it’s something that is worth being mindful of, is that they are different to loyalty cards.

So, a store card is different to your Nectar card that you might have from Sainsbury’s or your Clubcard that you might have from Tesco, for example. They are a completely different kettle of fish.

It’s not all the same thing so if you’re not sure it’s worth asking the question to make sure that you’re not signing up for anything that you’re not 100% sure about.

 

Emma Knights
Okay, that sounds good so far. What else can you tell us Becky?

 

Becky Campion
Now I thought we could talk about the charges and the costs of using the store card. This is where the maths is going to come in. You may need to turn the volume up!

Okay, so when you’re looking at the interest rate on your store card you need to be looking at the annual percentage rate, which is usually abbreviated to the APR. And, like I touched on earlier, this is the cost of borrowing.

An example, at the time of recording this podcast, is the New Look store card which is on offer. That has an APR of 28.9% and the minimum amount you can repay each month on the New Look card is actually the greater of 3.65% of the balance, or £3.65.

For my example of a £100 spend on the card, it doesn’t make any difference because the figures are going to be exactly the same.

For the example that I’m now going to give you however the minimum amount I’m going to pay off is £5 per month. So, if we pay off £5 each month from our £100 spend at a minimum it’s going to take me a total of 27 months to clear the debt off the card.

And not only that, I’m going to end up paying, once the interest has all been added, £132 pounds in total. And that’s not forgetting that the rate on the card is variable.

Remember that £132 assumes that the rate is going to stay at 28.9% throughout those 27 months and it’s not going to increase because if it increases, I’m going to end up paying more than that. On the plus side though with the New Look card if you sign up, you do get access to special offers, discounts and even special birthday treats.

So, the takeaway message is just to remember the potential cost that you may incur of having these cards.

 

Emma Knights
I guess if you paid that £30 in interest, you could actually get more than that back in benefits so depending on how you use the card it still might be worthwhile to have.

 

Becky Campion
Exactly, as with everything, weigh up the pros and cons of the cost of what you’re taking out.

 

Julie Hunt
What happens if you take out a store card and you really can’t make the repayments? I mean is the interest just going to keep building up or is there anything you can do about it?

 

Becky Campion
Well, there are a couple of things you can do, and it does depend a lot on the individual circumstances. So, the first thing you can sometimes do is contact the card provider and you can ask them for a payment holiday.

 

Julie Hunt
I’m guessing at the moment with the COVID situation, that’s probably something that is more likely to be possible.

 

Becky Campion
Yes, definitely. So, a payment holiday is basically where they’ll say we won’t add any interest on any money owed for X amount of time. That will in theory give you, as the borrower, a chance to collect the money up that you need to then repay what you borrowed.

The second option if you’ve had your payment holiday and you still are struggling is to contact the lender and speak to them and explain the situation. They are human, believe it or not, but they will still want their money from you. They may be willing to extend any payment terms and they sometimes may even reduce the interest rates that they’ve charged you. They want to get as much from you as they can, but they are willing to be flexible to an extent.

 

Emma Knights
I will just add in here Becky, I have known someone in the past who’s had a store card, and they couldn’t afford the repayments and they contacted the provider in advance when they knew they weren’t going to be able to repay the card. They were actually told “that’s fine, go away and come back when you actually miss a payment, we don’t want to know until after then”.

I think sometimes they aren’t particularly helpful in advance. You have to wait until you’re in a problem which obviously most people would like to avoid.

 

Becky Campion
When we’re talking about store cards, there’s store cards as I’ve already spoken about and then there’s also store credit cards.

 

Emma Knights
This sounds like it’s going to make it confusing.

 

Becky Campion
I did warn you at the start. So, store credit cards are actually more common than just store cards. You may have seen them in John Lewis and I think Sainsbury’s offer one too.

A store credit card is more similar to a normal credit card which again we’re going to touch on in more detail another time. But for today I’m going to talk to you about the Debenhams store credit card.

The credit card is exactly like I told you at the start of the podcast so it will have all of those features, but it’s a Debenhams store credit card. You can use it when you shop in Debenhams, not surprisingly I hasten to add. And you can also use it at any other location where you see the MasterCard symbol. So, it doesn’t just have to be used in a Debenhams store.

 

Emma Knights
So, it’s a bit confusing, that they call it a store credit card when actually you can use it anywhere?

 

Becky Campion
Yes, it is and I actually got very excited when I was researching for this podcast, because I thought oh, there’s a Debenhams store card. Then I was reading through the small print and I was like, that’s not a store card that’s a credit card and that is the difference.

 

Julie Hunt
Do they not do a store card anymore then?

 

Becky Campion
They don’t do a normal store card; you have to the store credit card.

 

Julie Hunt
It’s obviously been a few years since I had my Debenhams store card.

 

Becky Campion
They’re a thing of the past I’m afraid. Well from what I could see when I was looking anyway.

 

Emma Knights
So, go on, Becky tell us about the Debenhams store credit card.

 

Becky Campion
On the credit card, each time you use the card you earn points so it’s not dissimilar to your loyalty cards, where you earn points.

If you’re a big Debenhams fan, they will give you three points for every £1 that you spend in Debenhams and one point for every £2, that you spend on the card elsewhere.

 

Julie Hunt
Sounds pretty good. What are the points actually for, is it like points mean prizes?

 

Becky Campion
You’re not far out at all! You build the points up and then you can convert them into gift cards that you can use in store.

 

Julie Hunt
If only I was still a Debenhams girl!

 

Becky Campion
If only.

So, if I spend £70 on a set of saucepans in Debenhams on my card. And like with the New Look example, I’m going to pay off £5 per month off of my £70 balance that I’ve put on the card. By doing that it’s going to take me a total of 17 months to clear the debt off of the card. After the interest is all being added, I’m going to end up paying £82 for my £70 saucepans. So you can see they do end up costing me slightly more than what they would have done if I had just paid for them outright.

The other thing that I will add is the minimum repayment on the card is actually 1% of the balance. So that would actually only be 70p that I needed to pay off as a minimum each month, but for my example I have used £5 repayments per month.

I just want to add that I have used £5 in both this example and in the New Look example because I used a repayment calculator that is available online. Anyone can use it, it is a credit card repayment calculator, and the minimum monthly repayment that I could set on that is £5.

Obviously the minimum payment for the New Look card and the Debenhams card are actually less than the £5 on the calculator. So, I have just said £5 for ease and for the sake of my maths. I hope you can forgive me, ladies. I used the calculator online and the minimum that I’ve used is £5 each month. So, I hope that covers that all up.

 

Emma Knights
It does indeed Becky thank you for explaining it so simply.

I’m actually quite interested by the interest rate. I was expecting it to be considerably lower than the store card, and going on the example you gave for New Look, it’s not actually that much lower.

 

Becky Campion
It’s not that much lower. But it is lower when you start adding the numbers up and you start putting more and more money on it. That 4% would start to snowball and make a big difference as you start spending more and more money.

 

Julie Hunt
It does seem excessive when you look at what the interest rates on mortgages are at the moment.

 

Becky Campion
I think it may even be you I was talking to earlier about a mortgage that had a 1.6% interest rate on it.

 

Julie Hunt
Yeah so 24.9% is quite a penalty for trying to help the economy.

 

Becky Campion
Yes, it does.

 

Emma Knights
So how many people actually have store cards and use them?

 

Becky Campion
That is a very good question. I feel like it’s one that you may have queued up for me. Do you know the answer?

 

Emma Knights
Actually, I do. So, a survey has found that 87.9 million people in the UK, use store cards.

 

Julie Hunt
Wow.

 

Emma Knights
5% of those people actually admitted they had no idea what interest rate was on the card.

 

Becky Campion
That’s pretty scary seeing what the rates are at the moment. It probably goes back to what I was saying right at the start, about them being sold to the customer by people who don’t really understand what they’re doing.

And I have to say that next statistic you’ve got there, which says that over 4% said they felt pressured into signing up for the store card, is quite scary. If you don’t really understand what you’re doing, that’s a very dangerous game to be to be playing with.

 

Emma Knights
I also guess coming up to Christmas is a time where you might be looking to make some extra purchases to treat lots of different people. And if there’s that added pressure by someone in a store saying, oh, “how about pay for it later you can get it now still though”. It can obviously put people in a position that they don’t want to be in in future.

 

Becky Campion
Definitely. I think we’ve got a podcast coming up in December about Christmas saving haven’t we?

 

Julie Hunt
We have yes, some real delights lined up for you.

So, Becky we’ve talked a lot about high interest rates of store cards today, and I can see how many people get themselves into trouble with store cards. I mean it’s so easy to go in to a store, get yourself signed up and get your 20% off, all before you realise how quickly that interest rate, or those interest rates can build up.

What can you do to get yourself out of a muddle once you get yourself into one?

 

Becky Campion
So we did already touch on speaking to the lender, but I think from Emma’s story about doing that shows there are mixed levels of success. But it’s definitely always worth a try.

Another thing that you can do is speak to Citizens Advice, because they can provide you with free impartial guidance to hopefully point you on on the right tracks.

Another thing I think this is actually really excellent, is you can speak to a charity. One such charity is called StepChange and they may be able to help you sort of get out of the position that you’re in. They’re actually funded by banks, the government, loan companies and big insurance companies. I think it is an excellent thing which is run by volunteers. They will be able to help and again provide you guidance to hopefully point you in the right direction with where to where to go.

 

Julie Hunt
That sounds really really good, I think you know people do get themselves into quite a muddle by accident. It’s always important to know that the best thing to do is to go and talk to somebody, and not just put those envelopes in a drawer and hope they’ll go away.

 

Becky Campion
No, it definitely won’t. It’s not a good elephant in the room to have. So, I think I have covered everything that I know about store cards!

 

Julie Hunt
That is brilliant, thank you so much Becky for being in the hot seat today. I’m very much hoping that I won’t have the opportunity!

 

Emma Knights
Well by the sounds of it with all these ideas you’ve got about Christmas savings, it might be sooner than you think!!!