The phrase "credit available in-store" will seem like the panacea to the Christmas shopping wants and needs of consumers who have already borrowed up to the limit on their credit card and extended their overdrafts as far as their bank will allow, writes Laura Slattery
In-store finance deals that allow people to pay for items like electrical goods, computer equipment and furniture in instalments seem like an excellent way to buy expensive items upfront without having to save first.
It benefits retailers to offer deals that allow customers to spread the cost of luxury items. Not only does it expand the pool of people tempted to buy their goods, but the retailers also earn valuable commission on the loans from the credit provider.
The crucial difference between using in-store credit and simply paying for something by credit card is that, while credit cards are subject to abuse, they are designed for and facilitate short-term borrowing.
Over half of card users clear their balance monthly in order to avoid the interest rates, which can be 4-6 percentage points higher than overdraft rates and double personal loan rates.
High-street finance deals, on the other hand, encourage long-term borrowing at rates that are frequently even higher than those on credit cards, locking consumers into repaying high interest loans over anything up to four years.
For example, people buying Dell desktop or laptop computers online are offered the chance to spread repayments using a Permanent TSB finance plan that has an annual percentage rate of interest (APR) of 16.9 per cent, just 0.1 of a percentage point higher than the rate on Bank of Ireland's standard credit card and the same as the rate on Tesco's Visa card.
But the Permanent TSB finance option requires that customers pay for their computer over either 24 or 36 months.
The interest that racks up over such long periods will mean people will end up paying hundreds more than if they had paid upfront.
The price of a Dell Inspiron 5100 laptop, including VAT, is €1,646. On the Permanent TSB plan, it will cost a total of €1,999 over 24 months or €2,151 over 36 months.
Consumers should be particularly wary of 0 per cent finance offers. If the terms and conditions are broken, the penalties are severe.
Dixons' interest-free option consists of an interest-free period of either six, nine or 12 months.
If consumers fail to pay off the entire sum before the end of the agreed period, the interest rates revert to a massive 29.5 per cent APR, with this interest accruing from the first day of the loan rather than the end of the interest-free period. Someone who does not pay off a €900 loan within the interest-free period will end up repaying a total of €1,460 over a term of 48 months.
Dixons produces a leaflet explaining all of these terms and conditions and consumers should ask for a copy and examine it before signing up.
Elsewhere, consumers should always ask what the penalty interest rate is for failing to meet the terms and conditions on a 0 per cent finance deal.
The other credit option sold by Dixons is a fixed-term loan called Easiplan Finance, which charges consumers an interest rate of 19.8 per cent APR.
On cash price goods of €1,000, the total repayments over 48 months at this rate will arrive at €1,416.
ESB describes its finance plan, EasyPay, as a "simple and convenient" way for customers to purchase goods in its outlets.
No loan application form is needed and repayments are included with the ESB bill sent to households every two months.
But, again, convenience has a price. ESB shops offer 12 months interest-free credit on selected items.
Otherwise the rate on its EasyPay finance plan is 22.9 per cent APR - 4 per cent higher than the least competitive credit cards in the Irish market.
