Key learning points
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Some furniture stores offer in-store financing to pay for furniture over a period of time.
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You can also use a personal loan to pay for your furniture.
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Personal loans generally have a lower interest rate than retail financing.
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Before choosing either option, compare the pros, cons and costs.
Finding the money to pay for new furniture can be a daunting task. After all, the average cost to furnish a 3-bedroom home ranges from $10,000 to $40,000, according to HomeGuide.
Fortunately, many furniture stores offer in-store financing options, allowing customers to pay for new furniture over time. A second option is to take out a personal loan, which usually has a lower interest rate than the financing offered through a furniture store.
How furniture financing works
With furniture financing, a loan is taken out to cover the purchase price of the new furniture. With furniture loans, you don’t have to pay the full price of the furniture when you take it home. Instead, you can stretch the payments out over time.
The two most common methods of financing your furniture are personal loans and in-store financing. This table highlights some key differences between these two financing options.
| In-store financing | Personal loans | |
|---|---|---|
| Annual percentages | Up to 29.99% if not paid during the promotional period | 6% to 36% depending on the lender |
| Interest-free period? | Possibly | No |
| Loan terms | Varies | Usually one to seven years |
| Credit Requirements | May not need good credit as the loan is secured by the furniture | Good credit required to qualify for the lowest rates |
| Is collateral required? | Furniture can be used as collateral to secure the loan | No |
Interest-free loan in the store
When a store advertises a 0 percent interest rate, the loan is not completely interest-free. The loan has an interest rate attached to it, but the interest payment is waived if you follow the financing terms carefully.
This means you must make your monthly payments on time and pay off the loan within the promotional period. These promotional periods usually last between six months and three years.
If you miss a payment or do not pay off the loan on time, you will be charged any deferred interest that was previously forgiven. The interest rates for this type of loan can be as high as 29.99 percent.
Advantages
- Potentially interest-free: The main benefit is the ability to finance an expensive furniture purchase without paying interest. However, it is a requirement that you stay current on your payments and pay off the balance within the promotional period.
- Looser credit requirements: You may not need good credit to qualify. Because the financing uses the furniture as collateral, the store can approve you for a loan even if you have a low credit score.
Cons
- May not be interest free: Interest will be applied retroactively if you do not pay the balance in full before the promotional period ends or if you pay late. Interest is calculated from the day of purchase and added to the outstanding balance.
- High interest rates: Interest rates can reach nearly 30 percent if you miss a payment or don’t meet the requirements.
Personal loan
Personal loans are available through traditional banks, credit unions and private lenders. If approved, you will receive the money in a lump sum, which you can use as you wish.
You repay the amount owed in equal monthly installments over a specified period, usually between one and seven years. While personal loans are not exclusively for furniture financing, they can be useful for a number of reasons.
You may want to pre-qualify before you start shopping. This allows you to know the loan amount and interest rates you can qualify for without hurting your credit score.
Advantages
- Lower interest rate: If you have a good credit score, the interest you pay on a personal loan will likely be lower than what the furniture store offers.
- More spending options: Because you receive the money immediately, you can buy your furniture from different stores.
- No Collateral Required: The furniture you purchase will not be used to secure the loan. If you don’t pay off the loan, you won’t lose the furniture.
Cons
- Interest Starts Immediately: Unlike the furniture store where you only pay interest if you don’t meet the terms, interest payments on a personal loan start as soon as you receive the money.
- Origination Fees: Most lenders charge a fee to originate your loan. You can have it added to the costs of your loan, or deducted from the money you receive from the loan.
- Stricter Eligibility Requirements: People with poor credit scores may not qualify for a personal loan.
How to find the best financing deal
After purchasing a house and car, furnishing a home is one of the most expensive costs most people have. By researching your financing options in advance, you may discover the best way to pay for your new furniture.
- Weigh the pros and cons of retail financing versus a personal loan: Calculate what your monthly payments would be with each method and make sure your monthly budget takes that into account.
- Take the costs and interest into account: Consider interest and fees with each option and be realistic when determining whether you can pay off a retail loan at the end of the promotional period.
- Don’t settle for the first offer you get: Check the options available at other stores and with other lenders to get the best deal for you.
- For long promotional periods, check: If you choose in-store financing, look for a retailer that offers a longer promotional period program. This way you have plenty of time to clear the balance before interest accrues.
- Discover bad credit options: If your credit isn’t in the best shape, look into bad credit loan options. Some lenders may offer more competitive interest rates and lower fees than retail financing options.
Other ways to pay for furniture
Using in-store financing or personal loans aren’t the only options for paying for furniture.
- Buy now, pay later (BNPL): Services such as Afterpay and Klarna partner with retailers to offer payment plans. Some BNPL plans have no interest, while others have interest but no late or unexpected fees.
- Credit card: You may be able to use a credit card with a 0 percent interest rate for a certain period of time. If you have not paid off the balance after the promotional period, you will be charged interest on the remaining amount.
- Rental for personal use and layout in the store: This is another option for people with bad credit. You pay a rental fee for the furniture until you pay it off. However, the interest rate with this method is usually high. Some furniture stores also offer a clearance plan for a fee, but you won’t be able to take the furniture home until you’ve paid it off.
- Secondhand shopping: Thrift stores and consignment stores often have gently used furniture for a much lower price than brand new pieces.
- Borrow money from friends: Borrowing from a family member or friend can be an interest-free option. But make sure you both agree to a payment plan so you don’t damage your relationship.
- To wait: Buying new furniture can be great, but if it puts you at risk financially, consider waiting until you have enough money to pay for it in full. Creating a budget for the purchase will pay off in the future.
In short
Buying furniture can be expensive. Having the option to make monthly payments can help ease the strain on your budget. Personal loans and in-store financing are two great ways to do this.
Before you head to the furniture store, research all your options to choose the best payment method for your financial situation. If you choose a personal loan, be sure to compare rates, terms and fees from multiple lenders to get the best deal for your situation.
