In-store credit and hire-purchase

Store-linked cards are credit cards that carry the branding of the store you got the card from. They might come with benefits and discounts available when you use your card to pay for items sold by the company who supplied you with the card, but, unlike store cards, they can be used outside of the store as well.

Store-linked credit cards 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’re going to pay them off – make sure you do this before any introductory period ends.

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.

One type of this credit, offered by catalogue brands, is a ‘shopping account’.

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

In other cases, you might be offered what’s called ‘instalment credit’. This is basically a loan to finance the purchase. You own the goods from the start, but you pay for them in fixed instalments, either monthly or weekly, over a fixed period.

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

Unlike instalment credit, you don’t own the goods until you’ve made the final payment. This means that, in effect, you’re hiring the goods with an option to buy them.

When you’ve 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. These larger payments are often known as ‘balloon’ payments.

‘Conditional sale’ agreements work in a similar way – ownership is conditional on making all the payments. If you don’t make the payments, 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’ve paid at least a third of the total amount payable, the company can’t seize the goods without getting a court order first.

Generally, anyone offering credit needs to be authorised by the Financial Conduct Authority (FCA), so you have important rights should anything go wrong.

Typical complaints include:

• You’re unhappy with the quality of goods you’ve received.
• You’re 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.

You can choose to end a hire-purchase deal at any time before making the final payment. This is providing you’ve paid at least half the total amount payable, or pay up to that amount and there’s no damage to the item above normal wear and tear.

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

This is different to voluntary surrender, where you return the item but still owe what’s left. The finance company will usually sell at auction and charge you for the difference.

Or you can settle early by paying what you owe minus a rebate (called early repayment) and take ownership of the goods. You might still have to pay one to two months interest (sometimes called a settlement fee).

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

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

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

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 the total amount you have to repay when they’re deciding whether to lend.

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

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

• stain protection insurance, on items such as a sofa or a carpet
• warranty insurance, to protect you against the cost of some repairs.

These extras tend to be expensive, and might be unnecessary – as you could be covered by other insurance.

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

The best alternative to in-store finance, unless it’s 0% finance, is to buy 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.