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


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Dear Personal Loan Adviser,
We’re looking to buy some new furniture to go with our new house. The credit available on our credit cards won’t be enough, and we don’t really want to increase those credit lines.

We’re trying to decide between a personal loan and a no-interest loan offered by some furniture stores — no interest until 2018, I saw in one recent ad.
— Daisy Davenport

Dear Daisy,
The no-interest loans can work, but you have to go into those agreements fully understanding what happens if you don’t meet the terms.

One misstep and you wind up paying interest from the date of purchase, and typically the interest rate is pretty steep. I did a cursory review of a couple of these offers and saw annual percentage rates (APR) as high as 29.99%.

The buyer’s mindset may be, “I don’t care if it’s a high interest rate, because I’m going to avoid paying any interest.” That’s great if you can stick to the terms.

Manage your credit better

Your comment that you don’t want to ask your credit card providers for an increase to your credit lines makes me think you’re worried about managing credit, and by financing the furniture separately, you can manage your finances better.

A personal loan is an amortized loan, meaning the monthly payment covers the monthly interest expense as well as the reduction in the outstanding loan balance each month. Everything’s paid off at the end of the loan. That’s not true with credit cards, and not true for most no-interest furniture loans.

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Shop rates and terms

The online personal loan providers will let you shop rates and terms without it negatively impacting your credit score. Take them for a spin to see what the interest rate will be for your furniture purchases.

Keep in mind everything doesn’t have to be new, just because it’s a new house. I’ve gotten some of my favorite furniture from consignment shops or as family heirlooms.

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