What is Furniture Financing?

Furniture is a major purchase that will usually cost you quite a bit of money. It can be difficult to put down the whole cost of furniture in the event that you need to buy new furniture unexpectedly. Luckily, many large furniture stores will offer you an interest-free in-store financing option that allows you to pay for your purchase over time. This interest-free period ranges from company to company, but if you do not pay off the balance within that period, you will end up paying a lot more than you expected.

How Does Interest-Free Financing Work?

Interest-free is basically a deferred-interest financing program. You will either open up a store credit card or some type of furniture credit line. These options typically don’t even require a minimum purchase amount. The store will offer you an interest-free period if you decide to apply for one of their credit cards or furniture credit lines

The interest-free period will usually range anywhere from one year to six years depending on the total amount of the purchase you are making. After the period is over, the interest rate will kick in. Most commonly, the interest rate will fall somewhere between 20% and 25%, but it could end up being even higher.

One thing you need to pay super close attention to is the deferred-interest clause. In most cases, if you do not pay the promotional balance before the period ends, you will get charged for all of the interest that you would have been charged with throughout the deferrment period. If this happens, you can end up paying way more for the furniture than it was originally worth.

Advantages

New Furniture Immediately

If you decide to purchase your furniture with financing, you will be able to buy the new furniture you want for your home without having to have all of the cash on hand at the time you purchase. However, you need to control how much you are going to spend. You want to be sure that you can pay the whole balance before the promotional period ends.

Potential to Build Your Credit

If you don’t have the best credit, you might be able to build your credit with the help of a store card or credit line. It is extremely common that your payments will be reported to at least one, maybe all three, credit bureaus. You should check with the company first to make sure the payments report.

Each payment you make on time will help your credit score. To keep your score in the best shape possible, ask the store if they do a prequalification before an actual application. This will give you the opportunity to see if the store card or credit line is even an option for you without hurting your score.

Disadvantages

Risk of Large Interest Payment

With the promotional interest-free period, you need to pay off the entire balance you owe before the period is over. If you don’t you will be hit with a massive interest-payment as you get charged all of the deferred interest at one time. 

Potential to Hurt Your Credit

Just like furniture financing can build your credit, it can also hurt it. If you miss a payment or pay late even once, it will reflect negatively on your credit report.

Conclusion

If you need new furniture but you don’t have the entire cash balance for the purchase, you may be able to finance through the store. Big furniture stores will often offer different kinds of credit cards or credit lines that you can use to make your purchase. You will want to be careful with this, as you don’t want to spend more than you can afford.