Special report: The Business Herald this week investigates the cost of credit and how to make best use of your plastic.

They're promoted as an easy way for consumers to access interest free credit - the perfect means of buying that new TV set, fridge or pair of jeans.

Store cards, such as GE Capital's Gem Visa and Fisher & Paykel Finance's Q Card and Farmers Card, have largely replaced hire purchase at many of the bigger retailers.

The cards offer standard interest-free periods in the range of 55 to 90 days, which can be much longer on specific deals.

But there are also fees, and the interest rates can be eye-wateringly high if the balance is not paid off within the interest free period. The interest rates on Gem Visa and Q Card are 24.95 per cent and 25.25 per cent, respectively.


Consumer NZ chief executive Sue Chetwin said store cards could be convenient, but there were many pitfalls and some unsuspecting shoppers were getting themselves into trouble.

Card operators were keen to point out what the minimum payments were, but they often did not say what payments were required for the balance to be paid off before interest charges began, Chetwin said.

"They want you to go over [the interest free period] so they can begin charging their extortionate interest rates."

She said it would be hard to justify the kind of rates being charged.

"But that's what they're charging and you go into these things with your eyes wide open."

David Kneebone, executive director at the Commission for Financial Literacy and Retirement Income, said he was not concerned with whether or not the finance companies could justify the interest rates on store cards.

"What I'm interested in is whether consumers understand what they're getting into."

He said consumers needed to ask retailers questions and work out what the "true cost" of the purchase would be, including fees and any interest that might be incurred.

"We've got to be honest about this - finance companies and banks make money off selling debt so it's in their best interests for you to have the debt for a longer period of time and them to make a margin off the interest rates."

He said the high level of store card usage suggested they were fulfilling a genuine need for credit.

Fisher & Paykel Finance managing director Alastair Macfarlane said the interest rates on store cards reflected the high level of risk taken by the companies that operated them.

Consumer credit firms lent to a high risk demographic, he said.

"When you look at the losses we incur on consumer credit they are considerably higher than what banks incur on their credit cards ... we write off in any one year quite a high proportion of our gross interest income that we earn."

GE Capital said 80 per cent of its interest-free purchases were paid back within the interest free period, incurring no interest.

Interest rates
Gem Visa
*Six months interest free on purchases over $250
*Up to 55 days interest free on other purchases
*24.95 per cent interest

Q Card
*Three months interest free
*25.25 per cent interest

Farmers Card
*55 days interest free
24.95 per cent interest