Catalogue credit or shopping accounts
When you shop using a catalogue you will normally be offered the option of spreading your payments over a period of time. This can make large purchases seem more affordable. But with high rates of interest, catalogue credit can be an expensive way to borrow.
What is catalogue credit?
Catalogue credit is a way of buying goods, normally by post, with payments being spread over weekly or monthly instalments.
You can either get your own catalogue or buy through an agent who is often a friend, neighbour or relative. The agent usually earns commission on what they sell.
Catalogue credit is often referred as a ‘shopping account’ or ‘mail order account’. Often people will refer to their catalogue credit purchase as being bought ‘on account’.
Well-known catalogue companies include:
- K&Co (formerly Kays)
How catalogue credit works
Most of the large catalogues offer credit. Women’s fashion catalogues may encourage you to buy a number of items at the start of a season, for example spring and autumn.
Mail order or catalogue credit can sometimes be interest free so long as the cost of the item is repaid within a set period of time, usually between three and 12 months.
However, other catalogues charge interest for items that are paid for over a period of weeks or months.
While not as expensive as some forms of borrowing, catalogue credit is not cheap.
Here’s a comparison of longer-term catalogue credit against a credit card. The table is based on repaying £250 over two years.
|Type of borrowing||Example APR||Monthly repayments||Total cost of borrowing|
Paying it back
Catalogue credit is similar to a loan in that you have set repayments over a set period of time. A typical repayment period might be one or two years.
You should also beware of additional costs for:
- Late payments, and
- Missed payments
What to think about before you take out catalogue credit
- Do I really need the item? If it’s a luxury item, such as an item of clothing, it may not be worth taking out credit to pay for something when it will cost you more.
- Can I wait until I do have enough money for the item? If the item is something you need, but not urgently, consider saving up for it.
- Can I buy the item cheaper elsewhere? If it’s a branded item, it may be you can buy a cheaper non-branded version from another shop or even second hand through an auction site or recycling site.
- Can I borrow cheaper elsewhere? If you can’t get the item cheaper consider a cheaper form of credit, such as an interest-free credit card (as long as you can pay it back in full before the 0% period ends) or using an overdraft if you know you will be able to pay back the money quickly.
Pros of using catalogue credit
- If there is an interest-free period and you can pay off your balance during this period, your credit is free.
- It can be a more affordable way of paying for necessary items like school uniform than taking out a payday loan or using home credit.
Cons of using catalogue credit
- You might be tempted by the interest-free period but end up delaying your repayment and paying a high rate of interest, costing you far more than the items are worth.
- Missing a payment can affect your credit score in the same way as missing a loan repayment or credit card payment.
- If you have bought through an agent who is also a friend or neighbour, then not being able to make repayments may put them, and you, in an awkward situation.
Added extras that you may not need
Most catalogues will also offer insurance, sometimes called shopping insurance, which promises to protect anything you buy.
They may also offer insurance such as a ‘life event plan’, which will cover your repayments if you are unable to work through sickness or become unemployed.
What do these cost?
These policies are fairly expensive to take out, and exclusions may apply, for example if you are self-employed, you might not be able to claim, so read the small print carefully.
A typical policy will charge a percentage of your outstanding monthly balance – for example 1.98%. So if your outstanding monthly balance was £100, the insurance would cost you £1.98 a month.
Always consider alternatives options before you buy
Check! You may already have protection against accidental damage with your home insurance.
Check! You may have sickness cover as part of your employee benefits package.
Check! You may have sufficient savings or a redundancy package which you could use to clear the balance if you lost your job.
There are lots of different types of insurance designed to protect you against loss of income which could offer a much better solution and there are other providers of payment protection insurance so it’s a good idea to shop around and get independent advice.