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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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If you don’t have the cash to purchase furniture, a personal loan or no-interest loan from the retailer are other alternatives that could work. Both accomplish the same objective, but one is often costlier and poses more risk than the other.

Before you start shopping for the perfect pieces for your home, you should understand how furniture financing works to know which option is the most sensible for your financial situation.

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

You’ll apply at the point of sale for a no-interest loan 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. Otherwise, you’ll have to pay the deferred interest.

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 that 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 2 and 7 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 of each to determine which is most suitable for your situation.
  • If your credit score is low and you can’t get approved for a personal loan, don’t settle for the first in-store financing opportunity that comes your way.
  • Do your homework to find a retailer that offers a program with an extended promotional period, so you’ll have an ample amount of time to eliminate the balance before interest kicks in.
  • Also, explore bad credit loan options as they may offer a more competitive interest rate.

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. But if you have less than perfect credit and would prefer to avoid paying a fortune in interest, a no-interest store loan could be a better fit if you can commit to repaying the loan in the promotional period.

But personal loans are usually the safer bet. Even if you have every intention to pay off the loan early, if 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 end result.

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

Written by
Allison Martin
Allison Martin's work began over 10 years ago as a digital content strategist, and she’s since been published in several leading financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews, Investopedia, Experian and Credit.com.
Edited by
Loans Editor