What is a Single Purpose Credit Card
A single purpose credit card can be defined or explained as "a credit card that can be used in one store or chain of stores or one used only for a specific purpose. " These cards are also known as limited purpose credit cards or single purpose credit cards.
These credit cards are issued by the stores themselves. They have evolved from stores that traditionally gave goods on credit to their customers and made accounts for the same. As the goods bought on credit started to increase, the stores came up with a single purpose credit card. This credit cannot be used at any other store. However, if a store has a chain or a group of other stores, you'll be able to use it in its other stores.
Many departmental stores and gas chains issue such credit cards which are honored only by them.Examples . Examples of companies that provide a single purpose credit card are:
- Home Depot
- JC Penney
- Old Navy
These credit cards are similar to all-purpose credit cards, except for the fact that single purpose credit cards are not honored or accepted at all stores. These credit cards offered by the stores make shopping easier and tempting, firstly, by giving goods on credit and secondly, by offering various discount schemes, for those who use the card. The interest rates charged on 'single purpose credit cards' are higher than those on 'general purpose credit cards' and that's where the trick of earning profit lies.
Advantages To the Store
1. Increased Sales. Consumers using single purpose credit cards don't need to pay for the purchase, each time they go shopping. They only have to give their credit card and pay for the expenses made, which they can repay before the due date. These stores also offer many discount schemes, which attract consumers and increase the sales of the store.
2. Prevents Consumer Flight. Consumers are attracted to the discount schemes offered by the store. Also they get to
buy goods even without paying for it. So, customers when on a cash crunch will definitely come there. Consumers get used to the buying pattern followed and become regular customers there.
3. Increased Profits. As the sale of goods increases, the revenue of the store also increases, which in turn increases the profits. Not only that, these stores also earn in the form of interest payments from the defaulting parties. This feature was not present in the traditional system of giving goods on credit.
4. Reduced Losses. As the store gets to choose the goods that a consumer can buy on credit, it can easily reduce its losses even when goods are sold on credit. For example. A store is providing its customers with a single purpose credit card to be used only on grocery items. Now the question is how much grocery is an individual going to anyway purchase for the entire month. There is a limit to the grocery products that an individual can buy and thus not a lot of the store's money is stuck in credit. It will receive most of its repayment before the due date and if not, it will receive an additional interest from the defaulting consumer.
Advantages to the Consumer
1. Schemes and Discounts. Those using a single purpose credit card, normally receive several discounts and schemes on goods bought in a particular category, by the store. Consumers can make the most of it by spending less for the same amount of goods or by receiving free goods.
2. In Times of Cash Crunch. If a consumer is out of money, he can use the assigned single purpose credit card to buy the required goods, without paying for it at the same time. He can pay the amount later, when he has sufficient funds, but before the due date.
As you can see for yourself, a consumer benefits lesser as compared to the store that issues the single purpose credit cards. Though, consumers can make the most out of it, if they can manage their funds efficiently and repay the credit amount before the due date.Source: www.buzzle.com