Middle class consumers are opting for old style payment now called in-store credit. The Finance and Leasing Association show that the modern form of hire purchase, store instalment credit, has risen by 25% in the second quarter of 2012 compared to the same quarter last year. In contrast credit cards and personal loans are only up 1%.
The old form of credit was known as the “never never” where goods are purchased by making regular payments either weekly or monthly over a specified period. Title to the goods does not pass to the consumer until the payments have been completed over the agreed term.
These schemes are provided to the retailer by banks like Santander and Barclays and by non-banking groups like Home Retail Group. The difference between in-store credit and hire purchase is that once you have bought the goods you own them.
This is very popular for more expensive items such as sofas and is pushed by the stores. More than 2.6 million households have paid for furniture in this way and more than 660,000 have used it to buy electrical goods.
The director of the Centre for Retail Research, Professor Josh Banfield says that there is now a trend for “buy now pay later” basis. “ It’s seen as an acceptable way to pay. Users of the scheme even talk about it in the same way they boast about shopping in Aldi”.
A council member of R3, the trade body for insolvency professionals, Louise Brittain says there has been a shift in attitude towards HP and in-store credit. She says “it used to be an option for poorer people who couldn’t afford to buy something outright but that’s changing. Most people haven’t got as much money, the best deals on credit cards and personal loans are harder to get and in-store finance deals have become more competitive”.
Credit checks are less stringent for HP and in-store credit as opposed to cards and loans. They are also seen as less rigid and last longer. The longest interest free deal on credit cards for purchases is 16 months whereas interest free hire purchase can last for up to five years.
Rates are quite regularly the same for cash, credit cards or in-store finance and with in-store requiring no upfront payments, a longer period to pay and a fairly hassle free acceptance this has become the most popular method to purchase goods.