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Personal loan vs. the store’s no-interest loan for furniture

Couple looking at items in a furniture store
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Coming up with the cash to pay for new furniture can feel like a daunting task. Luckily, many furniture stores offer in-store financing options for customers. In-store financing gives you the option of paying for your new furniture with multiple payments. These in-store loans don’t have interest if you pay them off within a specified period. However, if you make a late payment or don’t pay off the loan in a specified period, you may be slapped with a hefty amount of interest on your loan.

There are other options for affording new furniture, though. Personal loans can also give you the cash you need to buy a new couch or dining table. Personal loans typically have much lower interest rates than the loans you can get through a furniture store. Both options have their pros and cons, and it’s up to you to decide what works best for you.

How furniture financing works

Furniture financing involves taking out a loan to cover the purchase price of the furniture. It prevents you from having to fork over a large sum of money at once, and you can stretch out the repayments over time.

Personal loans and in-store financing are both commonly used to finance furniture. There generally aren’t any restrictions on how you can use the proceeds from a personal loan. To illustrate, if you get approved for $10,000 and your furniture only costs $7,000, you’re free to use the remaining $3,000 however you see fit.

If you finance in-house, the loan is automatically used to cover the transaction, and you won’t receive any funds directly.

No-interest loan in-store

In-store loans that advertise 0% interest rates aren’t actually interest-free. The interest-free part only applies if you follow the terms exactly. These loans administered by the furniture store start applying a sky-high interest rate after a specified period if you haven’t paid off the loan yet — typically between 6 months and 36 months.

You’ll apply at the point of sale for a no-interest loan or a credit card with an interest-free period in the store. If approved, you’ll make the required monthly payments for the loan term. For the purchase to be interest-free, you’ll have to pay the loan off early before the promotional period lapses without any late payments. Otherwise, you’ll have to pay the deferred interest. The interest rates for this type of loan can be as high as 29.99%.

Benefits

The most significant perk of these no-interest loans in-store is the ability to finance a costly furniture purchase without paying interest. You must commit to the loan agreement terms and stay on top of your payments.

You likely won’t need good credit to qualify for a loan as some in-house financing departments will approve you with no credit check. Others will check your credit but still approve you for a loan with a low credit score and charge a higher interest rate to offset the risk of default.

Drawbacks

Interest is retroactively applied if you don’t pay the balance in full before the promotional period ends or if you make a late payment. This means the lender will calculate the interest you would’ve owed from day one until now and roll it into the current outstanding balance. If you miss a payment and the lender decides to void the agreement, the same could happen.

Another major drawback is the interest rate lenders charge on these loans. Since they generally cater to borrowers with low credit scores who can’t get approved elsewhere, you can expect to receive an interest rate of 25 percent or higher.

Personal loan

Personal loans are debt products you can get through traditional banks, credit unions and private lenders. If approved, you’ll receive the funds in a lump sum and can use them however you’d like.

You’ll repay what you owe in equal monthly installments over a set period, typically between two and five years. While they’re not exclusively for furniture financing, it could be beneficial to use these loan products for a few reasons.

Benefits

It’s relatively easy to budget the monthly payment as it’ll remain the same over the life of the loan if you get a fixed interest rate. Plus, the interest rate on personal loans is generally far lower than what you’ll get with a no-interest loan in store if you have good or excellent credit.

Consider getting pre-qualified online to get an idea of the loan amount and interest rates you could qualify for without hurting your credit score.

Drawbacks

Lenders who offer personal loans always charge interest on the amount you borrow. So, you won’t get the luxury of a promotional interest period if you choose this form of financing over a no-interest loan in-store.

Furthermore, if your credit score isn’t up to par, finding a personal loan with a low interest rate can be challenging. Or you could be denied a personal loan altogether.

How to find the best financing deal

A no-interest loan in-store could work if you have the means to pay off your purchase within the allotted promotional period. You’ll also need a solid spending plan to ensure you aggressively pay down the balance and reach the finish line before the interest-free cutoff period.

Still, it’s a risky option that could cost you a fortune in interest if life happens. So, a personal loan could be the better option. You’ll get predictable monthly payments with interest already rolled into the amount you pay each month. Plus, you won’t have to worry about your payment increasing. It’ll remain the same over the life of the loan if you get a fixed interest rate.

Before you settle on a personal loan or in-store financing:

  • Weigh the pros and cons to determine which is most suitable for your situation. Start by running the numbers to get an idea of the borrowing costs associated with each option. Don’t forget to factor in any fees the lender may charge and interest costs to develop a realistic figure.
  • Don’t settle for the first in-store financing opportunity that comes your way. Instead, explore other financing options the retailer may have available. You may be better off taking your business elsewhere to a furniture store that can offer you a better deal.
  • Find a retailer that offers a program with an extended promotional period. You’ll have ample time to eliminate the balance before interest kicks in. It’s equally important to factor the monthly payment into your spending plan to determine if you can realistically pay the loan off within the allotted promotional period.
  • Explore bad credit loan options if you don’t have good credit. Some lenders may offer more competitive interest rates and lower fees than in-store financing options. Furthermore, some lenders allow you to get preapproved and view potential loan terms and monthly payment amounts without impacting your credit score. And there’s no obligation to formally apply if the loan isn’t a good fit.

Other ways to pay for furniture

Using in-store financing or personal loans aren’t the only options to pay for furniture. Consider also these options to fund your furniture purchase:

  • Buy now, pay later. Services like Affirm and Uplift now partner with a lot of retailers to offer payment plans for you to make your purchase. Certain plans have no interest, while others include interest, but these services promise no late fees or surprise fees, so you clearly know the amount you owe from the start.
  • Shop secondhand. Thrift stores and consignment shops often have gently used furniture on hand for a much lower price than brand new pieces. If you are on a strict budget and you don’t want to take on any loans, buying second hand makes for a great option.
  • Borrow money from friends. Borrowing from the bank or the furniture store means there will always be some fees or interest included. Borrowing from a family member or friend can give you a truly interest-free option. Just make sure you both agree to a payment plan, so you don’t harm your relationship.
  • Wait. Getting new furniture can be great, but if it puts you in financial jeopardy consider waiting until you have enough money to get the things you want. It might be inconvenient to live without a table or a brand new couch, but making it work until you can budget for the purchase will pay off in the future.

Bottom line

You can get the furniture you want without forking over several hundred or thousands of dollars. Consider a personal loan if you have good or excellent credit and want a predictable repayment schedule. If you have less than perfect credit and prefer to avoid paying a fortune in interest, a no-interest store loan could be better if you repay the loan in the promotional period.

But personal loans are usually the safer bet. Even if you intend to pay off the loan early, you’ll pay a fortune in interest even if you fall short by a few dollars. And a late payment gets you the same bad result.

Ultimately, you want to weigh the pros and cons of each and evaluate your financial situation to make an informed decision.

Written by
Emma Woodward
Contributing writer
Emma Woodward is a former contributor for Bankrate and a freelance writer who loves writing to demystify personal finance topics. She has written for companies and publications like Finch, Toast, JBD Clothiers and The Financial Diet.
Edited by
Loans Editor, Former Insurance Editor