Stunning store window and online displays are abundant in today’s consumer society. Wider, thinner televisions, smarter laptops, more fashionable coats, to-die-for shoes, the perfect piece of furniture – it seems we now carry an inexhaustible world shopping mall everywhere with us right on our smartphones.
Many consumers can hardly wait to get their hands on those must-have items. The only problem is the price-tag.
Shopping on credit: a growing trend
The fact that the stuff we want does not always fit into our budget does little to make us want it any less.
Clever retailers (like Interdiscount, Mediamarkt, Manor, Jumbo, Ikea, and others) know this, and have mastered the art of striking while the iron is hot by giving you the chance to buy now and pay later. Retailers do this by providing point-of-sale loans which only need to be paid back months or even years later.
Swiss store cards: interest rates are high
Providing loans to customers via customer store cards is a favorite among Swiss retailers. In addition to the rewards and discounts provided when customers use these cards to shop at relevant merchants, customers can also use these card to shop on credit or to pay in installments.
The cards are issued on behalf of stores by card issuers like Accarda AG, and are customized to fit the needs of each business.
The problem: Interest charges add yet another cost to consumers’ already strained pocketbooks.
Although Swiss retailers are not as ambitious as those in other countries (such as the U.S., where store cards come with rates as high as 29%), interest charges can still add up to a big extra expense.
At Ikea, paying in installments or shopping on credit using the Ikea Moneycard has a 12% annual interest rate price tag - just the maximum legal Swiss rate of 12%.
Consumer credit a major extra expense
The fact that interest is shown as effective interest rates rather than as a fixed additional payment puts consumers at a disadvantage because calculating the added cost of credit is very difficult. Costs become a lot clearer when rates are applied to the full price-tag.
A 10,000-franc credit with a 12-month term and a rate of 11.9% will cost you 622 francs in interest. If you chose a longer term of 24 months, you would pay 1219 francs in interest. So a 10,000-franc home entertainment setup, for example, could cost you 11,219 francs if you bought it on credit.
Customer credit vs. personal loans
Statistics show that getting store credit does not make sense – at least not financially. Instead, these loans provide retailers with a lucrative sub-business. Impulse buyers who are not willing to wait should compare loan offers to find the most affordable option.
Swiss banks offer much cheaper loans than those you get from store cards. The most affordable online loans come with rates as low as 5.9%.
Disadvantage: Banks generally perform rigorous credit checks, which can take some time. Another issue is that the best interest rates are only available to people with good credit. The worse your credit is, the more difficult getting a good personal loan will be.
Is paying by credit card a good alternative?
A conventional credit card provides an alternative for spur-of-the-moment purchases on credit. Generally, Swiss credit cards allow for carrying a balance or paying off credit via a direct debit. However, a look at the fine print usually reveals that using a credit card to shop on credit is an expensive habit.
Most Swiss credit cards charge interest rates of the legal maximum of 12%. The cost of carrying balances is clearly shown on each credit card information page in the moneyland.ch credit card comparison.
The moneyland.ch team
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