James Walker: Crafty credit can prove costly in the long run

Did you realise you might be borrowing money without even realising it?

Credit cards require discipline. Picture: Getty

Lenders and retailers have become crafty when it comes to offering us credit. They know we’re sceptical of high-interest rates and rip-off deals, so they’ve found ways to lure is in to deals that could trap us into expensive interest regardless. Here’s what to watch out for.

◆ Store cards: These have been rebranded as “discount cards” by many retailers. If you get to the till and are asked if you want to take advantage of a 10 per cent discount offer by signing up for a card, then it’s actually a high-interest storecard they’re flogging in disguise. If you want to take the discount, pay the full balance off the card asap. Interest can reach up to 40 per cent if you don’t.

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◆ Catalogues: If you think catalogues vanished with Littlewoods, think again. Most major online retailers offer deals that work in the same way. Interest-free periods and options to pay in varying instalments are all designed to lull you in to a false sense of security. The retailer is gambling that you won’t pay off the balance before the interest kicks in – and they’re usually right. They also take “minimum” payments that don’t clear the balance in time to avoid interest, too. Finally, payment dates often work on a 28-day cycle rather than on a set date each month, which means your bill becomes due slightly earlier every time.

◆ Credit cards: Your flexible friends can be useful to tide you over in an emergency, like getting stranded abroad. They can also give you a number of consumer rights if you’re spending over £100 and there’s a dispute with the supplier. But credit cards require discipline – and many of us just don’t have it. Be careful about leaving your credit card on “virtual wallets”, like Apple Pay or PayPal. With a few clicks you can spend a fortune without realising how much debt you’re running up. And interest rates are creeping ever higher, too.

◆ Hire purchase: 85 per cent of car finance deals are hire purchase, which has had a makeover and morphed into “PCP lending”. These deals are complex, so if you’re getting a vehicle upgrade over Christmas, set a budget before you buy and don’t get talked in to overspending by the salespeople. Watch out for the terms and conditions – you can be charged for everything from minor damage to going over mileage limits.

◆ Try before you buy: Isn’t it nice of some retailers to introduce “try before you buy” schemes? These schemes let you order items, try them (within reason), then return the ones you don’t want to keep. But wait, wasn’t that what people were doing anyway? And how come a payment services company like Klarna is handling the money? TBYB is another way to lure you in to expensive bills. It works because retailers know we’ll get tardy about returning items. And as soon as you stray over 30 days, you can get hit by big bills – and black marks on your credit, too.

The golden rule is be sceptical if you don’t have to pay straight away. Chances are there’s some hefty interest waiting in the wings. But if you do get ripped off by a retailer, make a complaint – it’s free, and credit complaints can be looked at by the financial ombudsman, too.

James Walker is the founder of online complaint-resolution service Resolver.co.uk