Surviving in never-never land

It used to be called living on the never-never because you could have what you wanted straight away and pay for it at leisure. But buying household goods through retailers' fixed-term instalment plans has made a surprising comeback in the last few years as an alternative to credit cards and loans.

The Finance and Leasing Association has just released figures showing that store instalment credit was up seven per cent in the second quarter of 2013 compared to 2012, while spending on credit cards and personal loans fell four per cent.

It wasn't just a flash in the pan – shopping via in-store buy now, pay later deals has jumped nine per cent in the past year.In 2012, more than 2.6 million households used store instalment credit to finance big ticket items ranging from sofas and washing machines to flat-screen TVs. Experts believe that the mini boom has been fuelled by tighter application rules for credit cards and loans, combined with attractive interest-free periods and budget-friendly fixed repayment terms.If you're tempted to take advantage of an in-store instalment plan, it pays to know what you're letting yourself in for before you sign up.

Read the small print – Read the small print of the agreement carefully to ensure you are comfortable with the deal the retailer is offering. In particular, check who will legally own the goods after purchase. Under hire purchase terms, for example, they don't become your property until you have paid in full, so they can be repossessed if you break the contract.Watch out for interest-free periods – If you cannot repay the loan before the interest-free period ends, you will be saddled with hefty interest charges, so keep a note of the date and make sure you can cover the instalments comfortably.

Compare against loans – Using the new Save section of the Money Dashboard website, you can compare quotes for cheap personal loans. It may be you can get a loan at a better rate than the instalment plan, so check this out before signing; getting a quote won't impact your credit rating.Check your credit report– This is an overview of your borrowing and repayment record. Lenders use it to see how well you're managing when you apply for credit, so it's a good idea to be sure that everything is accurate and up to date. You can see your Experian credit report with a 30-day trial of CreditExpert.

Trial available to new members only. Monthly fee applies after 30-day trial ends. Trial period starts on registration – further ID verification may be required to access full service, which may take up to five days.

Don't stop repayments – Missed payments stay on your credit report for at least six years, potentially damaging your credit score and preventing you from getting the best deals. Under some agreements, the finance company may also be entitled to take the goods back. If you have a problem, talk to your lender.

Plan your budget – Avoid penalty charges and additional interest by budgeting for your repayment each month. Money Dashboard budgeting software allows you to monitor your spending so you can be sure you're sticking to your budget and not overspending.

Look after your purchase – Under some agreements, you may not be the legal owner until your goods are paid for, so take care of them as you could be liable for any damage.

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