Did you know that furniture is one of the most expensive items to buy for your home or office? According to a recent survey, the average cost of furnishing a living room in the US is $14,000. If you don’t have enough cash to pay for your furniture upfront, you may want to consider furniture financing.
Furniture financing is a way of buying furniture now and paying for it later, usually with interest and fees. It can be a convenient and affordable option for business owners, homemakers, and individuals who want to furnish their homes or offices with quality furniture. However, furniture financing also comes with risks and responsibilities that you need to be aware of before signing any agreement.
In this guide, we will explain what furniture financing is, how it works, what are its pros and cons, and how to choose the best financing option for your needs.
This is a beginner’s guide to furniture financing, so whether you are new to the concept or just want to refresh your knowledge, we hope you will find this article helpful and informative.
Understanding Furniture Financing
Furniture financing is a type of credit that allows you to buy furniture now and pay for it later, usually with interest and fees. It can help you improve your living or working space, enhance your comfort and productivity, and express your style and taste. It can also help you save money, avoid debt, and build a credit history if used wisely. However, furniture financing is not the same as furniture leasing or traditional financing methods.
Furniture leasing is a rental agreement that lets you use furniture for a fixed period, with a monthly fee and an option to buy. Traditional financing methods, such as personal loans or credit cards, are not designed for furniture purchases and may have higher interest rates, stricter eligibility criteria, and lower credit limits.
Furniture financing is a direct ownership model that offers more flexibility and affordability for furniture buyers. You can choose from different financing options, such as in-store, online, or traditional, that suit your budget and preferences. You can also enjoy the benefits of furniture financing, such as access to higher-quality furniture, preservation of cash flow, and building of credit history.
However, furniture financing also comes with risks and responsibilities that you need to be aware of before signing any agreement. You need to understand the interest rates, fees, terms, and conditions of your financing option and compare them with other options. You also need to create a realistic budget and a repayment plan and stick to them. It would help if you avoided the pitfalls of furniture financing, such as high interest rates, late payment penalties, the potential impact on credit score, and hidden fees.
Furniture financing is a way of buying furniture on credit, but it is not a free ride. You need to make informed decisions and use it responsibly.
Benefits of Furniture Financing
Furniture financing is a way of buying furniture now and paying for it later, usually with interest and fees. It offers many benefits for furniture buyers, such as:
- Flexibility: You can buy the furniture you want when you want it, without having to wait for months or years to save up enough money. You can also choose from a variety of financing options, such as in-store, online, or traditional, that suit your budget and preferences.
- Cash flow: You can preserve your cash flow, which is the amount of money you have available to spend or save after paying your bills and expenses. By spreading the cost of furniture over time, you can avoid draining your savings or emergency funds and use your cash for other purposes, such as investing, saving, or spending on other needs or wants.
- Quality: You can access higher-quality furniture that can last longer, perform better, and look more attractive than cheaper alternatives. Higher-quality furniture can also have positive effects on your health, well-being, and satisfaction, as studies have shown that furniture can influence your mood, stress levels, posture, sleep quality, and productivity.
- Credit: You can build credit history, which is a record of how you have used credit in the past and how likely you are to repay your debts in the future. Having a good credit history can help you qualify for lower interest rates, higher credit limits, and better financing terms in the future. It can also help you with other financial goals, such as buying a car, a house, or starting a business.
Furniture financing can help you improve your living or working environment, enhance your comfort and productivity, and express your style and taste. It can also help you save money, avoid debt, and build a credit history if used wisely. However, furniture financing also comes with risks and responsibilities that you need to be aware of before signing any agreement.
Pros and Cons of Different Types of Furniture Financing
When you want to buy furniture on credit, you have several options to choose from. Each option has its pros and cons, depending on your budget, preferences, and credit situation. Here is a summary of the main types of furniture financing and their advantages and disadvantages:
In-store financing options
These are financing options offered by the furniture retailer or store, such as store credit cards or installment plans.
Pros:
- Easy to apply for
- May offer discounts, rewards, or special offers
- May have low or no interest for a limited period
Cons:
- High-interest rates after the promotional period
- May have annual fees or hidden charges
- May tempt you to overspend or buy unnecessary items
- It may affect your credit score negatively if you miss payments or max out your credit limit.
- May have upfront fees or down payments
- May have penalties for early or late payments
- May have limited availability for certain furniture items or retailers
- It may not help you build a credit history if the retailer does not report to credit bureaus.
Online financing platforms
These are financing options offered by online platforms or services, such as third-party financing services or buy now, pay later options.
Pros:
- Fast and easy to apply for
- May offer instant approval
- May have competitive interest rates and fees
- May have flexible repayment terms
- It may help you build credit history if they report to credit bureaus.
- It may have no or low interest, no or low fees, no credit check, and allow you to try before you buy
- It may be compatible with many furniture retailers or platforms.
Cons:
- It may require a credit check.
- May have eligibility criteria
- May have penalties for late payments
- May charge interest from the date of purchase
- May have spending limits
- This may affect your cash flow in the future.
- It may tempt you to buy more than you can afford
- May not help you build a credit history if they do not report to credit bureaus
Traditional financing methods
These are financing options offered by banks or other financial institutions, such as personal loans or credit cards. They can be used for any purpose, including buying furniture.
Pros:
- It can be used for any purpose.
- May have lower interest rates than credit cards
- May have fixed monthly payments
- It may help you build a credit history if you make payments on time.
- May offer rewards or cash back
- May have low or no interest for a limited period
Cons:
- It may require a credit check.
- May have eligibility criteria
- May have upfront fees or origination fees
- May have penalties for early or late payments
- It may take longer to process and approve.
- High-interest rates after the promotional period
- May have annual fees or hidden charges
- May have low credit limits
- May tempt you to overspend or buy unnecessary items
- It may affect your credit score negatively if you miss payments or max out your credit limit.
Choosing the right furniture financing option can be tricky. That’s why we’ve created this guide to help you compare and select the best one for your needs.
Tips and Tools to Consider Before Opting for Furniture Financing
Before you opt for furniture financing, you need to consider some important factors that can affect your budget and credit score. Here are some tips and tools to help you make informed decisions:
Interest rates and fees: Compare the annual percentage rate (APR), which is the total cost of borrowing, including interest and fees, expressed as a yearly percentage. The lower the APR, the less you will pay in the long run. Use an online APR calculator, to compare different financing options and see how much interest and fees you will pay over time.
Repayment terms and conditions: Read and understand the fine print, which is the detailed information and clauses in the financing agreement. Pay attention to the repayment schedule, the minimum payment, the grace period, the late payment fees, the prepayment fees, and the default consequences.
Eligibility criteria: Check the requirements and qualifications for the financing option you are interested in. Some common criteria include your income, your credit score, your employment status, your residency status, and your age.
Impact on credit score: Assess how the financing option you are considering will affect your credit score, which is a numerical representation of your creditworthiness. Some factors that can affect your credit score include your payment history, your credit utilization, your credit mix, your credit inquiries, and your credit age.
Steps to Secure Furniture Financing
Furniture financing requires a strategic approach. Here are some steps to help you secure the best deal for your furniture purchase:
Assess your budget and financial capacity: Determine how much you can afford to spend on furniture and how much you can afford to pay monthly for furniture financing. Consider your income, expenses, savings, debts, and goals. Use the 20/4/10 rule as a guideline: make a 20% down payment, finance for no more than four years, and spend no more than 10% of your gross income on furniture payments. Try to keep your Debt-to-Income ratio as low as possible
Research available financing options: Explore and compare different financing options that match your budget and preferences. Consider the pros and cons of each option, as well as the interest rates, fees, terms, and conditions. Use online comparison tools, to see and compare different financing options from various lenders and platforms.
Compare interest rates and terms: Choose the financing option that offers the best value for your money. Look for the lowest APR, the shortest repayment term, and the most favorable terms and conditions. Negotiate with the furniture retailer or the financing provider to get a better deal. You may be able to lower the interest rate, waive the fees, or extend the grace period.
Apply for financing: Fill out and submit the application form for the financing option you have chosen. Provide accurate and complete information, such as your personal details, income, employment, and credit history. Prepare and gather the required documents, such as your ID, proof of income, proof of address, and bank statements. Check your credit score and report before applying, and correct any errors or discrepancies.
Understand and sign the financing agreement: Review and understand the financing agreement, which is the legal contract that outlines the terms and conditions of your furniture financing. Make sure you agree with everything, and ask questions if you have any doubts or concerns. Do not sign the agreement until you are satisfied with the terms and conditions. Keep a copy of the agreement for your records, and follow the instructions for receiving and paying for your furniture.
One of the question I often encounter is Should You Use a Credit Card to Buy Furniture? Read this to get answer, if you also have the same question in your mind.
Tips for Wise Furniture Financing
Furniture financing can be a smart way to buy furniture, but it also requires careful planning and management. Here are some tips to help you use furniture financing wisely:
Set a realistic budget:
Before buying furniture, set a budget that reflects your income, expenses, savings, debts, and goals. Stick to your budget, and do not buy more furniture than you need or can afford.
For example, if you earn $3,000 per month and spend $2,000 on your bills and expenses, you have $1,000 left for savings, debts, and other needs or wants. If you want to buy furniture worth $6,000, and you can pay $200 per month for furniture financing, you will need to save $1,200 for a 20% down payment and finance the rest ($4,800) for 24 months at 10% APR. This means you will pay $223 per month for furniture financing, which is within your budget.
Read and understand the fine print:
Before signing the financing agreement, read and understand the fine print, which is the detailed information and clauses in the contract. Pay attention to the interest rate, fees, repayment schedule, grace period, late payment penalties, prepayment fees, and default consequences.
For example, suppose you sign a financing agreement that has a 0% APR for 12 months but charges a 25% APR after that. In that case, you need to pay off your balance within the promotional period, or you will face a huge increase in your interest rate. If you miss a payment, you may lose the promotional offer, and incur a late payment fee and a penalty APR. If you pay off your balance early, you may have to pay a prepayment fee. If you default on your payments, you may face legal action, damage your credit score, and lose your furniture.
Negotiate terms with the furniture retailer:
Before buying furniture, negotiate terms with the furniture retailer, such as the price, the delivery, the warranty, and the financing. You may be able to get a better deal, such as a discount, a freebie, an extended warranty, or a lower interest rate.
For example, suppose you want to buy a sofa worth $1,000, and the furniture retailer offers you a store credit card with a 15% APR and a 10% discount. In that case, you may be able to negotiate for a lower interest rate, such as 10%, or a higher discount, such as 15%. You may also be able to negotiate for free delivery, installation, or removal of your old sofa.
Create a repayment plan:
After buying furniture, create a repayment plan that helps you pay off your furniture financing on time and in full. Consider your income, expenses, savings, debts, and goals, and allocate a portion of your budget for furniture payments. Set reminders, alerts, or automatic payments to avoid missing or late payments.
For example, if you buy furniture worth $5,000, and you finance it with a personal loan with a 12% APR and a 36-month term, your monthly payment will be $166. You can create a repayment plan that helps you pay off your loan faster and save on interest, such as paying $200 per month or making extra payments whenever you have extra cash. You can also create a repayment plan that helps you manage your cash flow, such as paying the minimum payment of $166 or requesting a payment deferral or modification if you face financial hardship.
Risks and Pitfalls of Furniture Financing
High-interest rates
Risk: You pay more for your furniture than its original price. Your monthly payments go up. You have trouble paying off your debt.
Pitfall: Some options have low or no interest at first but high interest later. If you don’t pay off your balance within the promotional period, you face a huge increase in your interest rate and your debt.
Example: If you buy furniture worth $2,000, and you finance it with a store credit card that has a 0% APR for 12 months but charges a 25% APR after that, you will pay $0 in interest if you pay off your balance within 12 months. However, if you still have a balance of $1,000 after 12 months, you will pay $250 in interest in the next year, which is 12.5% of the original price of the furniture.
Late payment penalties
Risk: You pay extra fees and higher interest. You lose the low or no-interest offer. You damage your credit score.
Pitfall: Some options have a grace period, which is the number of days you have to pay your bill without incurring any interest or fees. However, if you miss the grace period, you pay the regular interest rate and the late payment fee.
Example: If you buy furniture worth $3,000, and you finance it with a personal loan that has a 10% APR and a 30-day grace period, you will pay $0 in interest if you pay your bill within 30 days. However, if you pay your bill on the 31st day, you will pay $25 in interest and a $35 late payment fee, which is 2% of the original price of the furniture.
Potential impact on credit score
Risk: You damage your credit score, which is a numerical representation of your creditworthiness. Your credit score can affect your ability to qualify for lower interest rates, higher credit limits, and better financing terms in the future. It can also affect your other financial goals, such as buying a car, a house, or starting a business.
Pitfall: Some factors that can affect your credit score negatively include missing or late payments, maxing out your credit limit, applying for too many financing options, and defaulting on your debt.
Example: If you buy furniture worth $4,000, and you finance it with a credit card that has a 15% APR and a $5,000 credit limit, you will use 80% of your credit limit, which is considered a high credit utilization ratio. If you miss or make late payments, you will lower your payment history, which is the most important factor in your credit score. If you apply for other financing options, you will increase your credit inquiries, which can also lower your credit score. If you default on your debt, you will face legal action, may result in bad credit score, and lose your furniture.
Hidden fees
Risk: You pay more for your furniture than you expected. You don’t notice the fees until later. You have trouble paying off your debt.
Pitfall: Some options have fees for origination, application, processing, service, maintenance, and insurance. They may not disclose them upfront or may bury them in the fine print.
Example: If you buy furniture worth $5,000, and you finance it with an online financing platform that has a 5% origination fee, a 3% application fee, a 2% processing fee, a 1% service fee, a 1% maintenance fee, and a 1% insurance fee, you will pay $650 in fees, which is 13% of the original price of the furniture. You may not be aware of these fees until you see them deducted from your loan amount, added to your monthly payment, or charged when you try to pay off your debt.
Most of you’re not sure if you should buy furniture in cash or finance it. You don’t want to make a costly mistake that will haunt you for years. Click here to read the blog and find out Is it better to buy furniture in cash or finance? Trust me, you don’t want to miss this.
Case Studies of Furniture Financing
Furniture financing can be a great option for buying furniture, but it can also be a risky one. Here are some case studies of furniture financing, showing the success stories and the cautionary tales of different individuals and businesses:
Success stories
These are examples of people who used furniture financing wisely and enjoyed the benefits of improving their living or working environment, enhancing their comfort and productivity, and expressing their style and taste.
Sarah: She is a homemaker who wanted to buy a new bedroom set for her daughter’s birthday. She found a beautiful set worth $2,500 at a local furniture store, but she did not have enough cash to pay for it. She applied for an in-store financing option that offered a 0% APR for 18 months, with a 10% down payment and a $25 monthly fee.
She paid $250 as a down payment and agreed to pay $139 per month for 18 months. She also created a repayment plan that helped her pay off her balance within the promotional period and avoid paying any interest. Her daughter loved the new bedroom set, and Sarah was happy with her furniture financing decision.
Have you ever wondered whether paying off a loan helps or hurts your credit? If you have, then you will find the answer to your question here: Does Paying Off a Loan Help or Hurt Credit? Here’s What You Should Know
Cautionary tales
These are examples of people who used furniture financing poorly and faced the challenges of paying more for their furniture than they expected, damaging their credit score, and losing their furniture.
John: He is a business owner who wants to buy new office furniture for his employees. He found a modern and ergonomic set worth $10,000 at an online furniture platform, but he did not have enough cash to pay for it. He opted for a buy now, pay later option that offered 0% interest and no fees for 12 months, with four equal payments every three months.
He did not read the fine print and did not realize that he had to pay a 20% penalty fee and a 30% interest rate if he missed a payment. He also did not create a repayment plan and spent his cash on other business expenses. He missed the first payment and was shocked to see that he had to pay $2,400 as a penalty fee and $900 as interest in addition to the original payment of $2,500. He could not afford to pay the bill, and his credit score was damaged. He regretted his furniture financing decision and wished he had done more research and planning.
Must read if you choose Credit Card as your Financing Option – Pros and Cons of Using Credit Cards to Finance Furniture
Conclusion
Furniture financing is a way of buying furniture now and paying for it later. It can be a great option for those who want to furnish their homes or offices with quality furniture. But it also has risks and responsibilities that you need to know before signing any agreement.
Furniture financing can help you improve your environment, comfort, productivity, and style. It can also help you save money, avoid debt, and build credit if used wisely.
Before choosing furniture financing, understand the different options, pros and cons, and impact on your budget and credit. Compare rates and terms, read the fine print, and negotiate with the retailer or provider. Set a realistic budget and repayment plan, and follow them. Avoid high rates, late fees, credit damage, and hidden charges.
If you want to learn more about furniture financing, visit our blog to read our informative and engaging articles. We share tips, tools, case studies, and best practices on how to use furniture financing wisely.