Customers can expect to pay up to 60% APR, almost triple the average credit card purchase APR
New analysis from independent comparison website money.co.uk reveals that catalogue credit could take the shine off of Christmas bargains as customers can expect to pay up to 60%1 APR with mainstream brands. This is almost triple the average credit card purchase APR, which is now 22.8%(2). With 10% of people using catalogue credit, our calculations show the total catalogue debt in the UK is over £10 billion(3).
Catalogue debt is the fourth most common type of debt problem reported after credit cards, overdrafts and loans (4). To put this into context, over a third (36%) of people that contact leading debt charities do so to discuss catalogue debt problems.
With the average problem catalogue debt reaching £2,046 in the first half of this year, this is a significant issue. The amount of catalogue credit per person has increased by 6% in the last year alone and could grow further in the run up to Christmas.(4)
Christmas shopping on a catalogue card can cost almost double the original purchase price. For example, consumers shopping with the Brilliant Gift Shop card will pay 58.7% APR. Based on the average Christmas spend, this will cost £7271 in interest and take three years and two months to repay. This is £547 more in interest than it would cost on a mainstream credit card.
Over five million UK adults use catalogue credit - our calculations show these consumers are paying £1.4 billion(5) more in interest than they would be on the average credit card.
Commenting on the findings, Hannah Maundrell, Editor in Chief of money.co.uk, said
"Overall, transparency around the cost of catalogue credit is as clear as mud with some providers. You really have to dig deep on their websites to find out exactly what the charges are.
"The high cost associated with this type of credit really seems to have fallen under the regulatory radar, particularly in light of the fact it's at the root of so many debt problems for financially vulnerable customers.
"In an ideal world, we'd all have the spare cash to cover our Christmas shopping without needing to borrow. For many that's not an option and some people will end up paying an extortionate amount in interest because they need to spread the cost.
"If you've already got a catalogue account set up for Christmas shopping and are planning to buy now and pay later, don't assume you'll get an interest-free deal. Check the interest rate you will be charged and if it's sky high, try to find another way to pay.
"Ultimately, if you need to put Christmas on credit, you seriously need to set your budget upfront so you know what you can actually afford. The key thing is, don't spend extra just because you can spread the cost. It's the thought that counts, not the price tag."
You still have to be credit checked when you apply for catalogue credit
Being rejected for this type of credit will still impact your credit record
If you apply for catalogue credit with lots of different retailers, you could impact your chance of being accepted because you'll look desperate
Most don't let you check your chance of acceptance before you apply, unlike credit cards
You may need to hunt for the interest rate in the small print because it's not always made clear
You'll need to make sure you keep up repayments, or you could be hit with late payment fees and charged interest back to day one
You generally have a grace period until your first statement when you're not charged interest, if you don't pay off your balance in full, then interest will begin to accrue
Interest rates on catalogue credit are often higher than credit building credit cards
Charging up to 60% APR, the average catalogue Christmas shopping bill could cost you double the original purchase price if you make minimum repayments
Notes to editors:
1. YouGov: Total Christmas spending per household (2016) = £780.28
2. Moneyfacts: Average credit card purchase rate as at 6/9/2016
3. Potential UK catalogue debt = £10,390,180,317 * 10% of the UK population (source: FCA - see caveat 5) = 5,078,290 * Average catalogue debt = £2,046 (source: Stepchange) * £2,046 x 5,078,290 = £10,390,180,317
4. Stepchange: 2016 Statistics Mid-Yearbook provides an update on personal debt trends for the first half of 2016
5. FCA: Consumer credit and consumers in vulnerable circumstances (April 2014)
6. Standard credit card interest (22.8%) on £780.28 = £180 if paying £40 per month. Difference from average catalogue credit interest payable = £274. £274 x 5,078,290 = 1,391,451,323.
7. Individual catalogues offer alternative interest free ways to spread the cost, such as Buy Now Pay Later which are subject to terms and conditions. Penalty fees and interest is payable if a payment is missed or not paid in full on time.