If you buy a house, you’ve accomplished a major milestone in life. But your financial adventures may not be over; you may be wondering how you’re going to furnish your home. The most common furniture loans include:
- In-store financing
- Credit cards
- Personal loans
If you’re spending more than a couple hundred dollars on furniture, the best option may be a personal loan.
If you do finance new furniture through other means, be aware that rent-to-own and in-store financing can have drawbacks.
We’ll walk through some of our reasoning.
Rent-to-own (RTO) pitfalls
You probably know the concept of an RTO. You go into a rent-to-own store, and pay for furniture in installments over a period of time. Eventually, you own your furniture, and in the meantime, you have a furnished house. It sounds like a reasonable way to finance new furniture. What’s not to love?
Unfortunately, the Federal Trade Commission puts it this way, saying on its website: “A typical contract may be for 12, 18 or 24 months. The longer the contract, the more you end up paying. What’s more, buying on a rent-to-own plan can cost double or triple what you might pay for the item with cash, on layaway, or on an installment plan.”
There are other reasons RTO may not be an appealing way to go. If you miss a payment — just one — you could have your furniture repossessed. Imagine explaining to your kids why this burly man is in your living room, unplugging their PlayStation and hauling away the TV.
There are also fees that often come with rent to own furniture, such as installation fees, late payment fees, excessive damage fees (after all, you don’t own the furniture yet).
You also might want to read the fine print and make sure you aren’t buying furniture that was used by someone else, until they had it repossessed.
In-store financing to pay for furniture
Sometimes, the stars align, and it can be fine to obtain financing through a store. But you do want to be aware of the risks. Often, retailers offer no-interest for 12 to 18 months if you use their store credit card. That’s a lot of time to pay off a room or two or more of furniture.
Just know that if you don’t get it paid off before the promotional period ends, the interest that has been accruing all that time may suddenly become due. And the rate can be high. If you struggle with paying things off, this could be a ticking financial time bomb.
Layaway: pay now, get furniture later
Compared to RTO and sometimes in-store financing, layaway can be a great option. Layaway is the practice of making installments before you own a product. Some furniture stores offer layaway plans and the biggest downside might be the inconvenience of waiting to finish the payment plan and receive your furniture.
Be advised: if you start making payments and later decide to cancel, you’ll likely have a cancellation fee — as high as 25 percent of the bill.
You might also complete your payments for a piece of furniture that is no longer in stock. You should receive store credit for something else, though.
Credit card interest rates can be high
If you put a bag of groceries on a credit card, you probably don’t care about the interest rate. But for thousands of dollars in furniture, you may care — a lot.
The average personal loan interest rate, as of this writing, is 10.7%. While the average credit card interest rate is just under 17%. Meanwhile, the average store credit card interest rate is around 22 percent and sometimes up to 30 percent.
There is nothing wrong with using credit cards for convenience or rewards and then paying them off with a personal loan. Or getting a card with a 0% introductory rate and then paying the balance off with a personal loan before the 0% rate expires.
Personal loans to pay for furniture
Personal loans can be good options for financing furniture. They offer some important advantages to other funding sources:
- Personal loans are widely available in amounts up to $35,000, more than enough to furnish a house
- Personal loan interest rates are usually fixed. No ticking time bombs here
- Processing time is fast. Unlike, many times, furniture store delivery
- Personal loan interest rates are usually lower than credit cards
- Personal loans are unsecured. You won’t lose your furniture if you miss a payment
- Personal loans don’t increase your utilization ratio and drop your credit score
In short, personal loans for furniture purchases may be as appealing as a welcome mat. If you’re looking for a way to make your home more comfortable, so you aren’t entertaining friends in lawn chairs and crashing on an inflatable mattress, personal loans for furniture may have you sitting pretty and sleeping well at night.