Imagine this: You enter a furniture store and spot the perfect sofa, bed, or dining table for your home. You check the price tag and realize that you don’t have enough cash to pay for it. What do you do?
If you’re like many people, you might whip out your credit card and swipe it without a second thought. After all, credit cards are convenient and widely accepted and often come with tempting offers and rewards. But are they the best option for buying furniture? What are the pros and cons of using credit cards to finance furniture, and how do they stack up against other financing options?
We will also provide tips and recommendations on financing furniture smartly and responsibly.
The Pros of Using Credit Cards to Finance Furniture
One of the main advantages of using credit cards to finance furniture is that they offer convenience, flexibility, and rewards. Here are some of the benefits of using credit cards for furniture purchases:
Convenience: You don’t have to apply for a loan, fill out paperwork, or wait for the approval. You can use your existing credit card and pay for your furniture in minutes. You also don’t have to worry about carrying cash or writing checks.
Flexibility: You can choose how much you want to pay each month if you meet the minimum payment requirement. You can also pay off your balance anytime without any prepayment penalties. You can manage your cash flow and budget according to your needs and preferences.
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Rewards: Many credit cards offer rewards, such as cashback, points, or miles, for every dollar you spend. You can use these rewards to save money or redeem them for other benefits, such as travel, gift cards, or merchandise. Some credit cards also offer 0% APR (annual percentage rate) for a certain period, usually 6 to 18 months. You can pay no interest for your furniture purchase if you pay off your balance before the promotional period ends.
However, using credit cards to finance furniture comes with risks and challenges. Here are some of the cons of using credit cards for furniture purchases:
The Cons of Using Credit Cards to Finance Furniture
One of the main cons of using credit cards to finance furniture is that they can have high-interest rates, low credit limits, and negative impacts on your credit score. Here are some of the drawbacks of using credit cards for furniture purchases:
High-interest rates: If you don’t pay off your balance in full before the 0% APR period ends or miss a payment, you will incur high-interest charges on your remaining balance. The average APR for credit cards is around 19%, which can add up quickly. For example, buy a $2,000 sofa with a credit card with a 19% APR, and you make the minimum payment of $50 monthly. It will take you more than five years to pay off your debt, and you will end up paying more than $1,000 in interest.
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Low credit limits: Most credit cards have a credit limit, the maximum amount of money you can borrow on your card. Suppose you use less of your available credit. This would led to bad credit score and reduce your chances of getting approved for other loans or credit cards. Your credit utilization ratio, which is the percentage of your credit limit that you use, should ideally be below 30%. Using more than that can hurt your credit score and indicate that you are a risky borrower.
Negative impacts on your credit score: Using credit cards to finance furniture can also damage your credit score if you make late or missed payments or default on your debt. Your payment history is the most important factor in your credit score, accounting for 35%. Making timely and consistent payments can improve your credit score while missing or skipping payments can lower your credit score and affect your credit history for up to 7 years.
As you see, using credit cards to finance furniture can have pros and cons, depending on how you use them. But are there any other options for furniture financing? Yes, there are. Here are some of the alternatives to using credit cards to finance furniture that can help you to overcome Pros and Cons of Using Credit Cards for furniture finance.
The Alternatives to Using Credit Cards to Finance Furniture
After going through Pros and Cons of Using Credit Cards now lets explore other options for furniture financing, such as personal loans, home equity loans, in-store financing, or layaway.
Personal loans
A personal loan is an unsecured loan that you can use for any purpose, including furniture purchases. You can apply for a personal loan from a bank, a credit union, or an online lender. You will receive a lump sum of money you must repay in fixed monthly installments over a certain period, usually 2 to 5 years. The interest rate and the repayment term of a personal loan depend on your credit score, income, and other factors.
Home equity loans or lines of credit
A home equity loan or line of credit is a secured loan that uses your home as collateral. You can borrow a certain percentage of the equity you have in your home, which is the difference between the market value of your home and the amount you owe on your mortgage. You can use the money for any purpose, including furniture purchases.
A home equity loan gives you a lump sum of money you must repay in fixed monthly installments over a certain period, usually 10 to 15 years. A home equity line of credit gives you a revolving credit line that you can access as needed and pay back over time, usually 10 to 20 years. The interest rate and the repayment term of a home equity loan or line of credit depend on your credit score, income, home value, and other factors.
Want to know some creative way to finance your furniture? Read this: 10 Creative Ways to Finance Your Dream Finance
In-store financing
Some furniture stores offer financing plans, allowing you to buy furniture now and pay later. You can apply for in-store funding at the point of sale. You will receive a credit account that you can use to pay for your furniture in monthly installments over a certain period, usually 6 to 36 months. The interest rate and the repayment term of in-store financing depend on the store’s policies and your credit score.
Layaway
Layaway is a type of payment plan that allows you to reserve a piece of furniture at a store and pay for it in installments over a certain period, usually 2 to 12 months. You receive the furniture once you pay off the total amount. The layaway’s interest rate and repayment term depend on the store’s policies and your agreement.
As you see this options can help you overcome the Pros and Cons of Using Credit Cards. Now lets answer the most asked question “How do you choose the best option for your situation? “ Here are some factors to consider when selecting the best option for furniture financing:
How to Choose the Best Option for Furniture Financing
When deciding how to finance your furniture, you should consider the following factors:
Your budget: How much money can you spend on furniture? How much money can you pay monthly for your furniture purchase? Choosing an option that fits your budget and doesn’t strain your finances would be best. You should also compare the total cost of each option, including the interest and fees, and choose the one that offers the best value for your money.
Your credit score: What is your credit score, and how does it affect your eligibility and interest rate for each option? Choosing an option that matches your credit score and doesn’t hurt your credit score would be best. You should also check your credit report and score before applying for any option and correct any errors or issues affecting your approval or rate.
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Your personal preferences: What are your goals and preferences for your furniture purchase? Do you want to pay off your debt quickly or slowly? Do you want to earn rewards or save money? Do you want to have flexibility or security? It would help to choose an option that suits your preferences and makes you happy and comfortable.
Furniture financing got you confused? Don’t stress, check out our guide, packed with tips and tricks to get you there without breaking the bank.
Conclusion
In conclusion, using credit cards to finance furniture can have pros and cons, depending on how you use them. There are also other options for furniture financing, such as personal loans, home equity loans, in-store financing, or layaway, each with pros and cons. Consider your budget, credit score, and personal preferences when choosing the best option for furniture financing.
If this blog post has helped you understand the pros and cons of using credit cards to finance furniture and the alternatives to using credit cards to finance 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.
Thank you for reading, and happy shopping!