In-store credit and hire-purchase

There are many different forms of in-store finance, each offering ‘buy now and pay later’. These are often presented in a way to attract you into taking them out but make sure you know what you’re getting into before you do.

Store cards

Store cards are a form of credit card. However, you can only use the card to make purchases within that particular store, or group of stores.

You are likely to be offered a card at the checkout, when you come to pay for the goods.

The interest rates on store cards are often much higher than normal credit cards.

This means that unless you pay off the balance in full each month it can take a long time, and cost a lot, to repay the debt - particularly if you continue to use the card to make new purchases.

Before you sign up, make sure you can afford the repayments.

If you sign up and you have a change of mind, there is a 14-day cooling-off period when you can cancel your agreement (this applies to all types of credit agreement.)

Some store cards might actually be ‘charge cards’ - which means that you have to pay off the full balance at the end of the month.

If you don’t, you’ll be hit with extra charges. Make sure you understand what you are signing up for.

Store-linked credit cards

These are credit cards which carry the branding of the store in question and that retailer might give you benefits and discounts when you use your card, but they can be used outside of the store too.

These might have longer interest-free periods than store cards, and similar rates of interest to unbranded credit cards, but you still need to think how you are going to pay them off - make sure you do so before any introductory period ends.

Catalogue credit and shopping accounts

Many catalogue brands, online shops and some high street shops offer buy now, pay later credit.

You get finance on an individual purchase and pay it off over time.

A particular type of this, often offered by catalogue brands, is a ‘shopping account’.

This is a bit like a credit card, but without the card - you are given a credit limit, and you can keep spending up to this maximum amount, provided that you make at least the minimum repayment each month.

In other cases, you might be offered what is called ‘installment credit’.

This is basically a loan to finance the purchase - you own the goods from the start, but you pay for them in fixed installment (either monthly or weekly) over a fixed period.

Hire-purchase

A hire-purchase (or HP) agreement is often offered when you buy a car or furniture.

Unlike installment credit, you don’t own the goods until you have made the final payment - in effect, you are hiring the goods with an option to buy them.

Once you have made all the payments to the finance company, you can opt to buy the goods by paying a final ‘option to purchase’ fee.

This might be a small nominal amount or something much larger, e.g. a ‘balloon’ payment.

‘Conditional sale’ agreements work in a similar way - ownership is conditional on making all the payments, and if not, the company can take the goods back.

In both cases, you can’t sell the goods until the agreement has come to an end, and if you don’t keep up your repayments the goods can be repossessed.

However, if you have paid at least a third of the total amount payable, the company can’t seize the goods without getting a court order first.

Your rights

Anyone offering credit needs to be authorised by the Financial Conduct Authority, so you have important rights should anything go wrong.

Typical complaints include:

  • You are unhappy with the quality of goods you have received.
  • You are unhappy with the valuation of the goods at the end of the period.

If you want to complain, your first step should be to contact the firm or store where you bought the goods.

If you don’t get a satisfactory response within eight weeks you can complain to the Financial Ombudsman Service.

Read more on the Financial Ombudsman Service websiteopens in new window.

How to get out of a hire-purchase deal

You can choose to end a hire-purchase deal at any time before making the final payment as long as you’ve paid at least half the total amount payable, or pay up to that amount.

This is called ‘voluntary termination’ - you hand back the goods and walk away with no further liability.

Alternatively, you can settle early by paying what you owe minus a rebate (early repayment) and take ownership of the goods.

In either case, you must inform the company in writing - details of how to do so should be in your credit agreement.

Keep a copy of your letter of termination in case any issues arise later on.

One benefit of in-store finance

The one positive to in-store finance (as opposed to store cards) is that the shops will tend to offer some form of interest-free period, usually three to 12 months, allowing you to buy now and pay for the product later on.

But this is only good if you can manage your money and make sure you pay off what you own in full within the interest-free period.

What to watch out for

If you don’t pay off the balance by the end of the interest-free period, your debt can rapidly mount up.

The effect on your credit rating

Having too many credit agreements (including in-store finances or hire-purchase) can lower your credit rating, even if you’re making your repayments on time.

That’s because lenders might look at the total credit you have available to you, and your total repayments, when they’re deciding whether to lend.

If you miss any repayments, this will damage your credit rating.

Insurance add-ons

The store might attempt to sell you additional products, such as:

  • Warranty insurance, to protect you against the cost of some repairs
  • Stain protection insurance, on items such as a sofa or a carpet, or
  • Payment protection insurance, designed to cover your repayments if you lose your job or fall ill and can’t work

These additional products tend to be expensive, and might be unnecessary - you might be covered by other insurance.

You need to check the terms and conditions as there are usually conditions and exclusions. It might not be worth your while.

Alternatives to in-store finance

The best alternative to in-store finance (unless it’s 0% finance) is to purchase the goods with money you already have - in some cases you might be able to negotiate a discount for cash.

If the goods are something you really want and 0% finance isn’t available, could you save up for them?

If you really must have them immediately, research your options. It might be better for you to take out an interest-free credit card or a personal loan.

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