What you need to know
Credit is making a comeback with the economic recovery and as long as that is maintained, we think that the demand for credit will continue to grow. But credit cards are by far the most popular way to get credit with only a minority of consumers (under 20% in our survey) actually taking out retail credit.
In retail credit, so called IFC (Interest Free Credit) is increasingly popular, especially in the household goods sectors, to the extent that retailers that had previously held aloof from it, have found themselves drawn into offering it.
Even so, almost three quarters of people tell us that they would rather save up than borrow to buy. Especially at the moment, consumers remain in a cautious mood and we do not expect to see a credit fuelled boom over the next few years.
Areas covered in this report
We ask about all credit taken out to finance retail purchases, but the main focus of the report is the credit offered by the retailers themselves.
By far the largest element is Interest Free Credit (a misnomer since the cost of the credit is included in the price). This comes in two forms:
As offered especially by furniture retailers. This can be for up to four years and even include a year before the first payment needs to be made.
As offered online mainly by shop direct. This can either be for a fixed period (say 20 weeks) at a fixed repayment, or for a much briefer period (say three months) after which it becomes interest bearing.
Interest bearing accounts are becoming less common, but they take many forms.
For Next and Freemans/Grattan it is the normal credit account. For Next, Directory is the way to buy its goods on credit.
Store cards are becoming less common though they are still around. Typically they charge a much higher rate of interest than credit cards.
Many store cards are being replaced by credit cards run with the retailer’s name on them. Typically these also give loyalty points which earn vouchers that can be spent with that retailer.
Some retailers have banking joint ventures which operate in the retailers name and make loans available. Tesco is alone in owning its banking business. We make no distinction in this report between the retailer banks and the banks backing them.
