Beware the hangover on festive offers

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The Independent Online

In the annual hunt for Christmas gift nirvana, you may be tempted to stick your presents on a store card promising generous discounts.

The lure of, say, 10 per cent off - particularly on expensive goods - can be hard to resist.

But while you might see this as a way to enjoy Christmas now and pay later, you could find your debts racking up horribly in the longer term.

"Don't let your initial savings go to waste by paying the sometimes exorbitant rates of interest," says Lisa Taylor from financial analyst Moneyfacts.

At the average store card annual percentage rate (APR) of 24.6, a borrower repaying only the minimum 3 per cent (or £5) each month would take 11 years and 10 months to pay down a £500 purchase, Moneyfacts figures show.

"At £1,082.98, this is more than double the initial spend," says Ms Taylor. "Bearing this in mind, the 10 or 20 per cent initial discount on your shopping doesn't seem so attractive."

Although Moneyfacts shows 24.6 to be the average APR, some store cards charge as much as 30 per cent - six times Bank of England base rate. The Creation Account cards, for example - used widely by stores including Carphone Warehouse, HMV, JJB Sports and Sainsbury's - have an APR of 30.9.

After this, the worst offenders include Burton, Dorothy Perkins, Laura Ashley, Miss Selfridge, Topshop and Warehouse at 29.9 per cent; FraserCard at 29.3 per cent; and Bhs, Habitat and Oasis at 29 per cent.

But not all in-store plastic carries astronomical rates: Ikea Home, for example, offers an APR of 12.9 while the upmarket department store Fortnum & Mason levies a comparatively low interest rate of 15.3 per cent on its card.

Savvy shoppers well aware of exorbitant rates charged on store cards don't use them for borrowing. Instead, they sign up for the discount and then immediately pay off their debt in full.

After that, cards should be cut in half or kept unused in case other discounts are offered in the future.

Ms Taylor points out that if you do find yourself unable to repay your balance in full, most credit card companies will accept balance transfers from store cards - but check the terms of your agreement.

Following a Competition Commission ruling in March, all retailers offering store cards with APRs over 25 per cent must issue a warning on the statements that cheaper credit is available elsewhere.

Card providers have until May next year to comply with the new rules.

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