Getting a store card can be very simple to do and because we are using it to buy things, then it may not feel like real borrowing. It is not as formal as a loan and different to an overdraft and so it can just feel like we are shopping not borrowing. Although it is different to some other types of loans, it is important to understand how it works and how it is still a form of borrowing.
How does a store card work
A store card is similar to a credit card in some ways. It is issued by a specific shop and you will be able to use the card to purchase items in that shop, other branches of the shop as well as other shops under the same parent company. The shop will tell you where you can use it when they issue it.
The card will be used to buy items and then after about six weeks and then on a monthly basis you will receive a bill. The bill will give you the option of just repaying a small percentage of what you spent or all of it. Then you will need to repay the minimum but could repay all of it or any amount in between. This means that you do not have to pay for everything right away which can help to spread the cost. However, you will get charged interest on any money that you do not repay. This is where the borrowing aspect comes in. You get interest free credit on all items until the bill arrives. Then you have to repay it in full by a specific date or else you will be charged interest on it until you do pay it off.
Although it is similar to a credit card, a shop may give you additional benefits if you use their store card. It could be that they will allow you to go to a preview sale evening, get discounts or even be given loyalty points when you spend on the card. The offers you get will vary from shop to shop and they may run promotions at certain times to try to get more people to sign up to the card. If you use the store a lot then this can be great as you might be able to use special offers to save money.
Is it a good form of borrowing?
A store is restricted in when you can use it which means that it is not really a very flexible form of borrowing. It can also be expensive if you do not pay off the full balance each month. Store cards may even have higher interest than credit cards and as they are not able to be used in so many places, they may not be such a good choice as a credit card.
Another potential problem with a store card is that you might be tempted to spend more on it than you need because it is convenient or you get loyalty points for doing so. You could therefore end up spending more money than you intended. You may stop comparing prices and just stick to this store, for example, because you have the card and spend more than necessary. You may also buy more things because you do not have to pay for them right away. It might feel like you can afford them and it is easy to ignore the fact that you will not only have to pay for them in the future but you will have to pay for the loan costs as well.
So, it is probably not a good form of borrowing as it could encourage you to take on unhealthy behaviours such as buying more than you need and paying more than necessary. Borrowing should also be carefully considered and you should be thinking about whether there are cheaper alternatives.
So, if you are wondering whether a store card is a proper form of borrowing then you will see that it is. It is money that you can have without paying it back for a while. You are restricted though in where you can use it, which makes it different to some other types of borrowing. It is also likely to be dearer than some other forms of borrowing as well. As it is a proper form of borrowing then you need to treat it the same way you would other loans. Make sure that you pay it off as quickly as you can to save money and do not borrow more money when you need. It is wise to keep note of how much you are spending on it and putting the money aside so that you have the money to repay it when you need to.