If you don't shop around for credit, you'll pay thousands of pounds more for your purchases. We show you how to buy without tears.
According to a recent report from Alliance & Leicester (A&L), shoppers are wasting thousands of pounds by using point-of-sale credit.
You know how it is: you can't walk through any big department store or electrical retailer without seeing dozens of adverts for store credit. However, many big-name retailers are ripping off their customers by charging sky-high rates of interest on credit deals.
Worryingly, almost three out of eight shoppers (37%) believe that retailers offer competitive rates on credit deals. In fact, this is one of the most expensive ways to borrow, with interest rates typically three times those charged by Best Buy personal loans. Despite this, a third of consumers regularly use pricey point-of-sale credit to pay for big purchases, such as a car, conservatory, double glazing or a new kitchen.
You need to take especially wary when buying larger items, such as home or lifestyle improvements, where you may be spending £5,000, £10,000 or even more. Indeed, A&L reckons that consumers who blindly take out point-of-sale finance without shopping around first could be wasting over £6,000 on their big buys. Let's look at a few typical examples, kindly provided by A&L:
The horrendous cost of
high-street credit | | | | | |
|---|
| Item | Initial purchase
price (£) | UK's cheapest loan
(5.5% typical APR)* | Finance cost (£)
at point of sale | Average APR (%)
at point of sale | Extra interest
paid (£) |
New/used car | 11,786 | 12,794 | 14,205 | 13.3 | 1,411 |
| Conservatory | 10,000 | 10,855 | 12,330 | 15.1 | 1,475 |
Kitchen | 6,000 | 6,513 | 7,407 | 15.2 | 894 |
Double glazing | 5,823 | 6,321 | 7,645 | 20.3 | 1,324 |
Bathroom | 5,490 | 5,959 | 6,870 | 16.3 | 911 |
Total/Average | 39,099 | 42,442 | 48,457 | 16.2 | 6,015 |
* By the way, if you're wondering how to get your hands on the UK's cheapest personal loan (from Moneyback Bank, a member of the Alliance & Leicester group), you'll find it in our
Personal Loans centre!
So, when you're planning a major purchase, perhaps the most crucial part of the entire process should be shopping around for cheap finance. For example, saving £911 in interest on your bathroom finance could pay for an upmarket bathroom suite or luxury tiles. Likewise, saving £1,411 on your car loan could mean adding a sunroof, leather seats or a state-of-the-art stereo system!
Remember, convenience always costs: store credit may be the fastest way to buy what you want, but it's also among the priciest. If you want to learn how to borrow like a banker, read my Five Tips To Choose A Loan. Finally, remember these wise words from the Romans, "caveat emptor" - "let the buyer beware"!
More: Get the UK's cheapest personal loan | Your Easy Guide To Cheaper Borrowing
