Beware the buy now, pay later rip-off
Catalogue shopping at home might be easy but do you understand the rules?
When money's tight, it can be tempting to take advantage of buy-now, pay-later deals. And catalogue companies have long provided cashstrapped customers with a way of spreading payments for clothes, household appliances and furniture.
Last year the charity received a record 25,235 calls about this type of debt - up by nearly 86% compared with 2007.
The Money Advice Trust, which runs the advice line, says problems largely arise because many shoppers don't realise they are taking out a consumer credit agreement when they start purchasing goods from a catalogue.
This means if they fall behind on their debts the catalogue company can pursue them through the courts. Neither are they aware that if they miss just one payment they will often lose any special 0% interest deals.
So Moneywise has put together a mini guide to catalogue shopping and what to do if you are struggling to pay for your debt.
If you think you've been scammed get in touch by leaving a comment below or emailing us on email@example.com and let us know exactly what has happened.
How does catalogue shopping work?
Catalogues offer a way of buying goods and spreading the cost over a set period, which can range from 20 weeks to four years.
They charge a typical APR of around 30%, although the rate you pay depends on your own personal circumstances such as your credit score, the size of your catalogue account balance and the time period you want to pay over.
Will I pay over the odds for my purchases?
Yes. While each provider has different charging policies, generally you pay interest for the convenience of not having to pay upfront.
For instance, on its website, the Freemans catalogue gives the example of buying a Hetty Vacuum Cleaner over two years at a monthly repayment of £7.57.
It states that over a 104-week term, you would pay a total credit price of £180.96, compared to a total cash price of £140.
That's an APR of just under 30%. The 'cash price' quoted also tends to be higher than what you can find elsewhere. For example, if you'd have bought the same vacuum cleaner direct from Tesco it would only have cost you £104.97.
I'm having trouble paying my catalogue bill. What action could I face?
Catalogue debts of more than £50 are regulated by the Consumer Credit Act 1974. The Act says that there must be a written credit agreement signed by both the borrower and the lender.
If you have signed an agreement, the company may pursue you to repay your debt and charge you additional interest.
It may also pass on your debt to third-party debt collection companies that may use bailiffs to take your possessions as part payment of what you owe.
You can also be taken to court and may face a county court judgment. However, if you did not sign an agreement, a court has the power to write off your debt should it find you have been treated unfairly by the catalogue company.
How can I clear my debt?
There are lots of claims management companies that promise to get your debts written off for you. However, steer clear of their help. "Most of these firms charge you large upfront fees, but with no guarantee that they will be successful in challenging your agreements," says National Debtline.
Instead, contact your catalogue company, explain your situation and offer to make small, regular repayments based on what you can afford. For more information, call National Debtline on 0808 808 4000.
What's the best alternative to catalogue shopping?
If you have a good credit rating, you could use a credit card that charges 0% on purchases for a set period - such as the Halifax All in One card, which won’t charge you interest for 15 months. These cards allow you to shop wherever you want, without having to pay the catalogue mark-up.
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.
Short-term cash loans designed to be borrowed mid-way through the month to tide the borrower over until they next get paid, whereupon the loan is settled. Generally used by people with bad credit ratings and/or no access to short-term credit such as an overdraft or credit card. Like logbook loans, this type of borrowing is hugely expensive: the average APR on payday loans is well over 1,000% and in some instances can be considerably more.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Claims management companies
Regulated by the Claims Management Services Regulator since 2006, claims management companies offer advice and legal services in respect of claims for compensation, restitution, repayment for loss, damage or negligence. To many, the term is merely a polite euphemism for “no win, no fee” law companies. If you feel they offer services you need, approach with care.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.