The lure of the sales and bargain prices is enough to make many consumers dash to the shops, and with many retailers offering the added incentive of ‘buy now – pay later’ more and more consumers will hope to ‘cash in’. But in reality you won’t cash in if you cannot pay in full after the interest-free period ends.

Michael Senior, head of personal lending for Bradford & Bingley, warns,“Generally, in-store payment schemes invite you to pay the balance in full at the end of the interest-free period. If you can’t, then the balance - plus interest - has to be paid over a set period of time, typically by monthly direct debit, for anything up to five years. This can end up costing the consumer hundreds, even thousands, of pounds in interest, leaving the so-called ‘bargains’ being paid off long after even next year’s sales have ended.”

Paying double

Take an example from an armchair/sofa costing £799 from a leather sofa store. The associated deal promotes no deposit and nothing to pay for 12 months and, if you can pay in full after the 0% period, you will incur no interest charges. However, if you can’t pay, you are required to make monthly payments of £41.99 over 36 months meaning the total cost of the armchair would almost double to £1511.64.

Mr Senior comments: “In an ideal world, you’d use the interest-free period to save the money to pay for the items. Realistically though, many may struggle to save after Christmas with presents and food bills still to be paid off. Which is why the buy now, pay later offers sound so attractive in the first place."

“If you think you might have problems repaying the remaining amount on the specified date, then it would make more sense to either take out a personal loan to pay for it or put it on a credit card. With so many lenders offering very competitive personal loan and credit card deals, it doesn’t make sense to pay over the odds.”

Payment options

Personal loans - with market-leading interest rates of around 6%, personal loan rates are much more preferable to the vast majority of credit offers from stores. They can also help borrowers who need the discipline of a structured repayment plan but don’t want to pay excessive interest charges.

Credit cards - transferring the balance to a credit card offering 0% interest is another cost-effective option. Even after the card’s introductory rate reverts back to normal rate, typically after 6 – 9 months, it is still likely to be considerably less than the rate charged by most in-store credit schemes. Borrowers can also keep a watchful eye on when the introductory rate ends and move to another 0% offer if there is some remaining balance left to be paid off.

Shop for a saving

Example: A high street electrical goods supplier offers a typical rate based on requiring £2,500 plus paying a 10% deposit. You can either pay 10 instalments and then settle the balance in full, and incur no interest charges, or you will be offered to pay monthly over 48 months at 29.5% APR which means the total amount repayable for your new Hi-Fi or TV rises to £3237.50.

In contrast, one of the best personal loan deals on the market for a £2,500 loan is Nationwide Building Society’s 6.7% fixed rate. Over 3 years the total amount payable would be £2,758.68 (excluding payment protection). With this deal there are also no repayment charges should you wish to pay off your loan earlier.