Furniture is one of your home or business’s most essential and expensive items. Whether you want to upgrade your old furniture, furnish a new space, or simply add style and comfort to your existing one, furniture can significantly improve your quality of life and productivity.
However, buying furniture can also be a significant financial burden, especially if you have to pay the total price upfront. That’s why many people opt for furniture financing, buying furniture without paying the total amount at once. Instead, you pay a portion of the cost and then make monthly payments until you pay off the balance.
Furniture financing can help you get the furniture you need or want without breaking your budget. However, there are different types of furniture financing options, each with pros and cons. In this article, we will explain what furniture financing is, how it works, and what factors you need to consider before choosing a furniture financing option.
What does it mean when you finance furniture?
When you finance furniture, you borrow money from a lender to buy it and then pay it back with interest. The lender can be a bank, a credit union, an online platform, or a furniture store. The lender will charge you a specific interest rate, the cost of borrowing money, and a monthly payment, the amount you must pay every month until you pay off the loan.
The interest rate and the monthly payment depend on several factors, such as the amount you borrow, the term of the loan, your credit score, and the type of furniture financing option you choose. The loan’s term is the loan is duration, which can range from a few months to several years. Your credit score is a numerical representation of your creditworthiness, which is your ability and willingness to repay your debts. The higher your credit score, the lower the interest rate and the monthly payment you will get.
The type of furniture financing option you choose can also affect the interest rate and the monthly payment. Different furniture financing options exist, such as personal loans, credit cards, home equity loans, home equity lines of credit, and in-store financing. Each has its advantages and disadvantages, which we will discuss in the next section.
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.
How does furniture financing work?
Furniture financing works differently depending on the furniture financing option you choose. Here is a brief overview of how each one works:
Personal loans
A personal loan is a type of loan you can use for any purpose, including buying furniture. You can apply for a personal loan from a bank, a credit union, or an online platform. You must provide personal and financial information, such as your income, expenses, assets, debts, and credit score. The lender will then evaluate your application and decide whether to approve you. If approved, you will receive the loan amount in your bank account, which you can use to buy the furniture. You will then have to repay the loan in fixed monthly payments over a predetermined term, usually between one and five years.
The interest rate and the monthly payment will depend on the amount you borrow, the term of the loan, and your credit score. Personal loans usually have lower interest rates than credit cards but higher than home equity loans. They also do not require any collateral, which means you do not have to risk losing your home or car if you default on the loan. However, they may have origination fees, which the lender charges for processing the loan, and prepayment penalties, which the lender charges for paying off the loan early.
If your credit score is bad and your are looking for a furniture financing option then this article will help you out – Bad Credit Furniture Financing Options- Secure And Affordable
Credit cards
A credit card is a type of revolving credit that you can use to make purchases and pay them off later. You can apply for a credit card from a bank, a credit union, or an online platform. You must provide personal and financial information, such as your income, expenses, assets, debts, and credit score. The lender will then evaluate your application and decide whether to approve you. If you are approved, you will receive a credit card with a credit limit, which is the maximum amount of money you can borrow on the card. You can use the credit card to buy the furniture and pay it off in whole or in part every month.
The interest rate and the monthly payment will depend on the amount you borrow, the credit limit, and your credit score. Credit cards usually have higher interest rates than personal loans but lower than in-store financing. They also offer rewards, such as cashback, points, or miles, which you can redeem for various benefits.
Some credit cards also offer 0% APR deals, which means you do not have to pay any interest for a certain period, usually between six and 18 months. However, credit cards also have balance transfer fees, which are fees that the lender charges for transferring the balance from one card to another, and late fees, which the lender charges for paying late or missing a payment. Moreover, suppose you do not pay off the balance in full every month. In that case, you will incur interest charges, which can accumulate quickly and increase your debt.
Must read if you choose Credit Card as your Financing Option – Pros and Cons of Using Credit Cards to Finance Furniture
Home equity loans
A home equity loan is a type of loan that you can use for any purpose, including buying furniture, by using your home as collateral. You can apply for a home equity loan from a bank, a credit union, or an online platform. You must provide personal and financial information, such as your income, expenses, assets, debts, and credit score. The lender will also appraise the value of your home and determine how much equity you have in it.
Equity is the difference between the value of your home and the amount you owe on your mortgage. The lender will then decide how much you can borrow, usually a percentage of your equity, up to a specific limit. You will receive the loan in a lump sum, which you can use to buy the furniture.
You will then have to repay the loan in fixed monthly payments over a predetermined term, usually between five and 15 years. The interest rate and the monthly payment will depend on the amount you borrow, the term of the loan, and your credit score. Home equity loans usually have lower interest rates than personal loans and credit cards but higher than home equity lines of credit. They also offer tax deductions, which means you can deduct the interest you pay on the loan from your taxable income.
However, they also require collateral, which means you risk losing your home if you default on the loan. They also have closing costs, which are fees that the lender charges for closing the loan, and prepayment penalties, which are fees that the lender charges for paying off the loan early.
Home equity lines of credit
A home equity line of credit, or HELOC, is a revolving credit you can use for any purpose, including buying furniture, by using your home as collateral. You can apply for a HELOC from a bank, a credit union, or an online platform. You must provide personal and financial information, such as your income, expenses, assets, debts, and credit score. The lender will also appraise the value of your home and determine how much equity you have in it.
The lender will then decide how much you can borrow, usually a percentage of your equity, up to a specific limit. You will receive a HELOC with a credit limit, the maximum amount of money you can borrow on the line. You can use the HELOC to buy the furniture and pay it off in whole or in part every month.
The interest rate and the monthly payment will depend on the amount you borrow, the credit limit, and your credit score. HELOCs usually have lower interest rates than home equity loans but higher than personal loans and credit cards. They also offer tax deductions, which means you can deduct the interest you pay on the line from your taxable income. However, they also require collateral, which means you risk losing your home if you default on the line.
They also have variable payments, which means the interest rate and the monthly payment can change over time, depending on the market conditions. They also have closing costs, which are fees that the lender charges for closing the line, and prepayment penalties, which are fees that the lender charges for paying off the line early.
In-store financing
In-store financing is a type of financing that you can get from the furniture store itself. You can apply for in-store financing at the point of sale, where the store representative will ask you for some personal and financial information, such as your income, expenses, assets, debts, and credit score. The store will then evaluate your application and decide whether to approve you. If you are approved, you will receive a financing plan and a contract specifying the terms and conditions of the financing, such as the interest rate, the monthly payment, and the duration of the financing.
You can use the financing plan to buy the furniture and pay it off monthly over a certain period, usually between six and 36 months. The interest rate and the monthly payment will depend on the amount you borrow, the duration of the financing, and your credit score. In-store financing usually has higher interest rates than personal loans.
How to choose the best furniture financing option for your needs and budget?
As you can see, there are different types of furniture financing options, each with pros and cons. Therefore, choosing the best furniture financing option for your needs and budget can be challenging. However, there are some factors that you can consider to make an informed decision. Here are some tips on how to choose the best furniture financing option for your needs and budget:
Compare different options
Before deciding on a furniture financing option, you should compare other options and see which offers the best terms and conditions for your situation. You can also read our article to learn about the pros and cons of varying furniture financing options. You should also check the eligibility criteria, fees, and penalties of other furniture financing options and see which one you qualify for and can afford.
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.
Consider your needs and preferences
When choosing a furniture financing option, consider your needs and preferences. For example, if you need the furniture urgently, you may select a furniture financing option with a fast and easy application and approval process, such as a credit card or in-store financing. Suppose you want to save money on interest. In that case, you may choose a furniture financing option with a low or zero interest rate, such as a personal loan or a 0% APR deal.
Suppose you want to have flexibility and convenience. In that case, you may choose a furniture financing option with a high credit limit and no collateral requirement, such as a home equity line of credit or a credit card. Suppose you want to have stability and security. In that case, you may choose a furniture financing option with a fixed interest rate and monthly payment, such as a home equity loan or a personal loan.
Plan your budget and repayment
Finally, when choosing a furniture financing option, you should plan your budget and repayment. Try to keep your Debt-to-Income ratio as low as possible. You should calculate how much you can afford to spend on the furniture and how much you can pay back every month. You should also consider how long you want to take to pay off the furniture and how much interest you will pay. You should also save money for emergencies and unexpected expenses like repairs, maintenance, or taxes. You should also track your spending and payments and ensure you do not miss or delay any costs, as this can affect your credit score and incur fees and penalties.
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
Tips For Choosing A Good Furniture Financing Option
Some tips for choosing a good furniture financing option are:
- Compare different options and see which offers your situation the best terms and conditions. Compare other furniture financing options’ interest rates, monthly payments, and total costs.
- Consider your needs and preferences and see which option matches them best. For example, if you need the furniture urgently, you may want a fast and easy option, such as a credit card or in-store financing. To save money on interest, you may want a low or zero-interest option, such as a personal loan or a 0% APR deal.
- Plan your budget and repayment, see how much you can afford to spend on the furniture, and pay back every month. You should also consider how long you want to take to pay off the furniture and how much interest you will pay. You should also save money for emergencies and unexpected expenses like repairs, maintenance, or taxes.
We have a APR calculator to help you know your monthly payments and how much your loan will really cost you. We hope you make use of this tools in your favor.
Common Mistakes To Avoid When Choosing A Furniture Financing Option
Some common mistakes to avoid when choosing a furniture financing option are:
- Not comparing different options and choosing the first one that seems attractive. You should always compare the interest rates, monthly payments, fees, and terms of varying furniture financing options and see which suits your needs and budget best.
- Not considering your needs and preferences and choosing an option that does not match them. You should consider how much you need to borrow, how quickly you can pay it back, how much interest you are willing to pay, and how much flexibility and convenience you want. You should also consider your credit score and how it affects your eligibility and interest rate for furniture financing options.
- Not planning your budget and repayment and choosing an option you cannot afford. You should calculate how much you can spend on the furniture and how much you can pay back every month. You should also consider the duration of the financing and the total cost of interest. You should also save money for emergencies and unexpected expenses like repairs, maintenance, or taxes. You should also track your spending and payments and make sure you do not miss or delay any costs, as this can affect your credit score and incur fees and penalties.
Read our Guide on Furniture Financing: Furniture Financing Guide: All You Need To Know Before You Buy
How To Calculate The Total Cost Of A Furniture Financing Option
I can give you an example of calculating the total cost of a furniture financing option. Let’s say you want to buy a sofa that costs $1,000 and have two options: a personal loan or a credit card.
- Personal loan: You can get a 10% interest rate loan and a 12-month term. The monthly payment will be $87.92, and the total loan cost will be $1,055.04 ($87.92 x 12).
- Credit card: You can use a credit card with a 20% interest rate and a minimum payment of 3% of the balance. The monthly payment will vary depending on the balance, and the total cost of the credit card will be $1,169.40.
As you can see, the personal loan is cheaper than the credit card in this example. However, this may not be the case for every situation, so you should always compare different options and see which suits your needs and budget best.
Conclusion
Furniture financing is buying furniture without paying the total price upfront. Instead, you pay a portion of the cost and then make monthly payments until you pay off the balance. Furniture financing can help you get the furniture you need or want without breaking your budget. However, there are different furniture financing options, such as personal loans, credit cards, home equity loans, home equity lines of credit, and in-store financing.
Each has pros and cons; you should compare them and consider your needs and preferences before choosing one. You should also plan your budget and repayment and ensure you can afford the furniture and the financing. Furniture financing can be a great way to enhance your home or business if you use it wisely and responsibly.
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.