When you shop using a catalogue you will normally be offered the option of spreading your payments over a period of time. This can make large purchases seem more affordable. But if you’re not disciplined to repay on time, catalogue credit can be an expensive way to borrow.
- What is catalogue credit?
- How catalogue credit works
- What to think about before you take out catalogue credit
- Pros of using catalogue credit
- Cons of using catalogue credit
- Added extras that you might not need
- Alternatives to catalogue credit
What is catalogue credit?
Catalogue credit is a way of buying goods, normally by post, with payments being spread over weekly or monthly instalments.
You can either get your own catalogue or buy through an agent who is often a friend, neighbour or relative.
The agent usually earns commission on what they sell.
Catalogue credit is often referred as a ‘shopping account’ or ‘mail order account’.
Often people will refer to their credit purchase as being bought ‘on account’.
Well-known catalogue companies include:
- K&Co (formerly Kays)
How catalogue credit works
Most of the large catalogues offer credit.
Mail order or catalogue credit can sometimes be interest free so long as the cost of the item is repaid within a set period of time, usually between three and 12 months.
But if you don’t do so, interest can start mounting up quickly.
However, other catalogues charge interest from the date of the purchase.
It is important to check the terms and conditions carefully before you sign up.
While not as expensive as some forms of borrowing, catalogue credit is not cheap.
Here’s a comparison of longer-term catalogue credit against a credit card. The table is based on repaying £250 over two years (assuming no interest-free period).
|Type of borrowing||Example APR||Monthly repayments||Total amount payable|
Paying it back
Catalogue credit is similar to a loan in that you have set repayments over a set period of time.
A typical repayment period might be one or two years.
You should also beware of additional costs for:
- Late payments, and
- Missed payments
What to think about before you take out catalogue credit
- Do I really need the item? If it’s a luxury item, such as an item of clothing, it might not be worth taking out credit to pay for something you don’t really need.
- Can I wait until I do have enough money for the item? If the item is something you need, but not urgently, consider saving up for it.
- Can I buy the item cheaper elsewhere? If it’s a branded item, it might be you can buy a cheaper non-branded version from another shop or even second hand through an auction site or recycling site.
- Can I borrow cheaper elsewhere? If you can’t get the item cheaper consider a cheaper form of credit, such as a 0% credit card, (as long as you’re sure you can pay it back in full before the 0% period ends).
Pros of using catalogue credit
- If there is an interest-free period and you can pay off your balance during this period, your credit is free.
- It can be a more affordable way of paying for necessary items like school uniform than taking out a payday loan or using home credit.
Cons of using catalogue credit
- You might be tempted by the interest-free period but end up delaying your repayment and paying a high rate of interest, costing you far more than the items are worth.
- Missing a payment can affect your credit rating in the same way as missing a loan repayment or credit card payment.
- If you have bought through an agent who is also a friend or neighbour, then not being able to make repayments might put them, and you, in an awkward situation.
Added extras that you might not need
Catalogues might also offer insurance, sometimes called shopping insurance, which promises to protect anything you buy.
They might also offer insurance such as a ‘life event plan’, which will cover your repayments if you’re unable to work through sickness or become unemployed.
What do these cost?
These policies are fairly expensive to take out, and exclusions might apply.
For example if you’re self-employed, so read the small print carefully.
A typical policy will charge a percentage of your outstanding monthly balance.
For example 1.98%. So if your outstanding monthly balance was £100, the insurance would cost you £1.98 a month.
Always consider alternatives options before you buy
Check! You might already have protection against accidental damage with your home insurance.
Check! You might have sickness cover as part of your employee benefits package.
Check! You might have sufficient savings or a redundancy package which you could use to clear the balance if you lost your job.
If you do decide to take out insurance, it’s important to shop around and check what it covers and whether there are exclusions.
Alternatives to catalogue credit
There are various alternatives to catalogue credit, consider the following beforehand:
- Personal loans
- Overdrafts explained
- Choosing and applying for a credit card
- Deciding on the best type of credit for you
This article is provided by the Money Advice Service.