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| Shop around to avoid racking up a catalogue of pricey debt Shop around to avoid racking up a catalogue of pricey debt | |
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| Alex spent £675 on a washing machine and a fridge-freezer from Littlewoods, opting to “buy now pay later”. At the time his income was sufficient to make the repayments before the end of the interest-free period, but when he was suddenly made redundant he couldn’t afford to repay the debt in time, and then an interest rate of 39% kicked in. | Alex spent £675 on a washing machine and a fridge-freezer from Littlewoods, opting to “buy now pay later”. At the time his income was sufficient to make the repayments before the end of the interest-free period, but when he was suddenly made redundant he couldn’t afford to repay the debt in time, and then an interest rate of 39% kicked in. |
| “Suddenly the payments went up from about £130 to £250 a month and I didn’t have the cash,” he says. “Buy now pay later seemed the easy option, but looking back I should have just saved up the money for a couple of months. It was naivety on my part.” | “Suddenly the payments went up from about £130 to £250 a month and I didn’t have the cash,” he says. “Buy now pay later seemed the easy option, but looking back I should have just saved up the money for a couple of months. It was naivety on my part.” |
| Alex sought advice from debt charity StepChange, and with its help reached an agreement with Littlewoods. In total he repaid £1,130, nearly twice the amount he borrowed. “I will never have a catalogue debt again,” he says, “If I want something I’ll save up for it.” | Alex sought advice from debt charity StepChange, and with its help reached an agreement with Littlewoods. In total he repaid £1,130, nearly twice the amount he borrowed. “I will never have a catalogue debt again,” he says, “If I want something I’ll save up for it.” |
| Alex’s difficulties were compounded by the fact that interest rates on goods bought from catalogues tend to be higher than those on mainstream credit. At this time of year it can be tempting to use these firms to buy Christmas gifts, but finance experts warn that if you’re not going to pay off your borrowing quickly, you could end up paying a high price. | Alex’s difficulties were compounded by the fact that interest rates on goods bought from catalogues tend to be higher than those on mainstream credit. At this time of year it can be tempting to use these firms to buy Christmas gifts, but finance experts warn that if you’re not going to pay off your borrowing quickly, you could end up paying a high price. |
| Traditional catalogues such as Freemans and Littlewoods have been around for decades. They allowed customers to shop at home and spread the cost with a range of payment options. The rise of the internet means these brands now operate online, and have been joined by a host of catalogue-style firms selling clothes, gadgets, gifts and furniture. | Traditional catalogues such as Freemans and Littlewoods have been around for decades. They allowed customers to shop at home and spread the cost with a range of payment options. The rise of the internet means these brands now operate online, and have been joined by a host of catalogue-style firms selling clothes, gadgets, gifts and furniture. |
| The catalogue companies typically offer customers incentives to open “personal accounts” with a discount off their first order or free delivery. Account holders are then offered various options to spread the cost of their purchases. Recently, comparison website Money.co.uk described the cost of catalogue credit from some suppliers as “clear as mud”. It warned that in some cases catalogues were charging three times the typical credit card APR of 22.8%. | The catalogue companies typically offer customers incentives to open “personal accounts” with a discount off their first order or free delivery. Account holders are then offered various options to spread the cost of their purchases. Recently, comparison website Money.co.uk described the cost of catalogue credit from some suppliers as “clear as mud”. It warned that in some cases catalogues were charging three times the typical credit card APR of 22.8%. |
| Among the biggest firms, Very.co.uk charges a typical interest rate of 39.9%; JD Williams (which owns Jacamo, SimplyBe, Fifty Plus, and others) 58.7%; Studio 48.9%; Look Again (owners of Kaleidoscope, Witt International and Curvissa) 34.9%; and Argos 29.9%. | Among the biggest firms, Very.co.uk charges a typical interest rate of 39.9%; JD Williams (which owns Jacamo, SimplyBe, Fifty Plus, and others) 58.7%; Studio 48.9%; Look Again (owners of Kaleidoscope, Witt International and Curvissa) 34.9%; and Argos 29.9%. |
| “Buy now pay later”, or BNPL, is a common option. Borrowers who pay the entire bill within the stipulated timescale, normally three, six or 12 months, pay no interest at all. Managed well, this can be a great way to borrow. But if your personal circumstances change and you run into problems, or you just miss a payment, it can cost you dear. If you fail to pay off your borrowing in time the interest is usually backdated to day one – not the date the interest-free period ended. | “Buy now pay later”, or BNPL, is a common option. Borrowers who pay the entire bill within the stipulated timescale, normally three, six or 12 months, pay no interest at all. Managed well, this can be a great way to borrow. But if your personal circumstances change and you run into problems, or you just miss a payment, it can cost you dear. If you fail to pay off your borrowing in time the interest is usually backdated to day one – not the date the interest-free period ended. |
| Much like payday loans, the rates are high because non-payment issues are more common | Much like payday loans, the rates are high because non-payment issues are more common |
| Headteacher Jacquie Sainsbury recently learned this the hard way. She has been a Very customer for five years, always making her repayments before interest kicked in. However, when she recently attempted to settle a £1,621 balance a power cut meant her debit card payment wasn’t processed and she missed the deadline. Very charges a typical APR of 39.9%, and interest at this rate – £644 – was applied to her account. She asked Very for leniency given that she had tried to make the payment, but the matter is yet to be resolved. | Headteacher Jacquie Sainsbury recently learned this the hard way. She has been a Very customer for five years, always making her repayments before interest kicked in. However, when she recently attempted to settle a £1,621 balance a power cut meant her debit card payment wasn’t processed and she missed the deadline. Very charges a typical APR of 39.9%, and interest at this rate – £644 – was applied to her account. She asked Very for leniency given that she had tried to make the payment, but the matter is yet to be resolved. |
| A spokesperson for Shop Direct, which owns Very, says: “Our BNPL options, at terms of six, nine or 12 months, allow customers to budget by making payments of any amount at any time to suit them, and avoid interest by paying the full cash price of the item before the end of the BNPL period. The APRs we offer are competitive, and are based on customers’ individual circumstances and their credit risk profiles.” | A spokesperson for Shop Direct, which owns Very, says: “Our BNPL options, at terms of six, nine or 12 months, allow customers to budget by making payments of any amount at any time to suit them, and avoid interest by paying the full cash price of the item before the end of the BNPL period. The APRs we offer are competitive, and are based on customers’ individual circumstances and their credit risk profiles.” |
| Very also offers “low monthly payments” as an option, allowing customers to “take as long as they like” by paying the minimum each month: £5 or 7% of their account balance. But a customer doing this would take five-and-half years to repay a £500 debt, paying £314 in interest in the process. Paying £100 a month instead of the minimum would mean the debt was repaid in six months, with an interest bill of £48. | Very also offers “low monthly payments” as an option, allowing customers to “take as long as they like” by paying the minimum each month: £5 or 7% of their account balance. But a customer doing this would take five-and-half years to repay a £500 debt, paying £314 in interest in the process. Paying £100 a month instead of the minimum would mean the debt was repaid in six months, with an interest bill of £48. |
| In comparison, if you borrowed £500 on a mainstream credit card charging 18.29% and repaid £100 a month, you’d pay just £23 in interest over six months. | In comparison, if you borrowed £500 on a mainstream credit card charging 18.29% and repaid £100 a month, you’d pay just £23 in interest over six months. |
| Jane Tully, director of external affairs at the Money Advice Trust, says the wording “take as long as you like” sends entirely the wrong message. “It could lead to customers paying a large amount of interest, even on a relatively small debt. This language should be changed as a matter of urgency.” | Jane Tully, director of external affairs at the Money Advice Trust, says the wording “take as long as you like” sends entirely the wrong message. “It could lead to customers paying a large amount of interest, even on a relatively small debt. This language should be changed as a matter of urgency.” |
| The trust is one of several debt charities warning about the high cost of catalogue debt. Its research shows an estimated 1.9 million people used catalogue credit to buy Christmas presents in 2015. About one in 10 callers to the National Debtline, the charity’s free advice service, have problems with catalogue debt. | The trust is one of several debt charities warning about the high cost of catalogue debt. Its research shows an estimated 1.9 million people used catalogue credit to buy Christmas presents in 2015. About one in 10 callers to the National Debtline, the charity’s free advice service, have problems with catalogue debt. |
| Shop Direct also owns Littlewoods. Its customers can “spread the cost” with at least 20 weeks’ interest-free borrowing. After that interest kicks in, although the Littlewoods website doesn’t display the representative rate. A spokesperson told The Observer that the rate depends on the individual customer’s circumstances, but that only a minority choose to arrange their repayments so that they attract interest. “The majority pay the full cash price before the interest opt-out period is over. The most common rate of interest for those that do pay interest on BNPL transactions is 44.9%.” | Shop Direct also owns Littlewoods. Its customers can “spread the cost” with at least 20 weeks’ interest-free borrowing. After that interest kicks in, although the Littlewoods website doesn’t display the representative rate. A spokesperson told The Observer that the rate depends on the individual customer’s circumstances, but that only a minority choose to arrange their repayments so that they attract interest. “The majority pay the full cash price before the interest opt-out period is over. The most common rate of interest for those that do pay interest on BNPL transactions is 44.9%.” |
| Grattan was the only company The Observer came across that provided a worked example of the cost implications of not repaying a BNPL deal in time. It states: “Failure to pay a £200 debt in 12 months incurs an interest charge of £60.69, and the new balance of £260.69 then incurs interest at a typical rate of 34.9% until repaid.” | Grattan was the only company The Observer came across that provided a worked example of the cost implications of not repaying a BNPL deal in time. It states: “Failure to pay a £200 debt in 12 months incurs an interest charge of £60.69, and the new balance of £260.69 then incurs interest at a typical rate of 34.9% until repaid.” |
| Andrew Hagger of financial website MoneyComms says many people wouldn’t buy things from catalogues if they were aware of the potential cost. “Because the interest charges are applied over multiple weeks or months, the customer loses track of how much they are actually paying back,” he says. “Much like payday loans and credit builder-type credit cards, the interest rates are high because the default rates and non-payment issues are more common than with mainstream credit.” | Andrew Hagger of financial website MoneyComms says many people wouldn’t buy things from catalogues if they were aware of the potential cost. “Because the interest charges are applied over multiple weeks or months, the customer loses track of how much they are actually paying back,” he says. “Much like payday loans and credit builder-type credit cards, the interest rates are high because the default rates and non-payment issues are more common than with mainstream credit.” |
| StepChange says 36% of its clients have catalogue debt, with the average amount owed standing at more than £2,000 – and rising. “Catalogue credit can be an extremely expensive way to shop if people cannot afford to pay it off quickly or they miss payments,” says spokesman Edward Ware. “People need to think carefully about whether credit is the right option for their shopping, before searching for the best deal and deciding whether they can afford to pay off the balance before interest starts to mount up.” | StepChange says 36% of its clients have catalogue debt, with the average amount owed standing at more than £2,000 – and rising. “Catalogue credit can be an extremely expensive way to shop if people cannot afford to pay it off quickly or they miss payments,” says spokesman Edward Ware. “People need to think carefully about whether credit is the right option for their shopping, before searching for the best deal and deciding whether they can afford to pay off the balance before interest starts to mount up.” |
| If you fall behind on catalogue repayments, don’t stick your head in the sand. It’s vital to get in touch with your creditors and explain your situation. A debt adviser can help you work out a payment based on a pro-rata distribution of your available income – this means you offer all your creditors a fair share of what you can afford to pay. You can also ask for any interest and charges to be frozen. | If you fall behind on catalogue repayments, don’t stick your head in the sand. It’s vital to get in touch with your creditors and explain your situation. A debt adviser can help you work out a payment based on a pro-rata distribution of your available income – this means you offer all your creditors a fair share of what you can afford to pay. You can also ask for any interest and charges to be frozen. |