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Buying furniture for your home represents a big purchasing decision, and there are several ways to pay for it. One popular way to pay for furniture is through financing. Although financing allows you to get the furniture you want quickly, you need to watch out for red flags when doing so, including:
- Zero-percent financing: If you opt to go with zero-percent financing, make sure to pay off the full amount in the allotted time. Failure to do so means you are then responsible for all of the back interest you would have paid normally.
- Consumer financing loans: Usually reserved for borrowers with subprime credit, consumer financing loans can hurt your credit if you rely on them too many times.
- Revolving credit account: Revolving credit accounts can quickly hurt your debt-to-credit ratio and lower your credit score.
Options for financing furniture
Once you have made the decision to finance a furniture purchase, you have some choices to consider.
- In-store financing: The most common way to finance furniture is to apply for credit at the store where you are buying it. It’s imperative that you pay your monthly bill on time or the interest rate on the purchase can shoot up dramatically. Also, if you don’t pay off a zero-interest loan before the promotional rate expires, you could end up paying back interest.
- Credit card: The main problem with using a credit card for a big purchase is that it reduces the amount of available credit you have, which raises your credit utilization. This lowers your credit score. In addition, using a credit card means you’ll probably pay more for the furniture in the long run because of interest rates.
- Home improvement loan: You can also take out a home improvement loan by tapping the equity you have in your house. Referred to as an appliance/furniture loan, most lenders allow up to $5,000 for this type of loan. A home improvement loan usually has a low, fixed interest rate, making it cheaper than a credit card.
- Rent-to-own: Rent-to-own stores allow you to take the furniture home and pay installments. Unlike regular financing, consumers can return the furniture to the rental store at any time without penalty. On the other hand, if the consumer fails to pay, the retailer has the right to repossess the furniture.
In-store layaway: Layaway carries no finance fees. However, you may need to pay a one-time fee upfront or put down a percentage of the purchase price in advance before you begin making payments. One downside is that you may miss out on sales and have to pay the price the furniture was selling for when you placed it on layaway. And be sure you really want the furniture if you use layaway, because there are often cancellation fees if you change your mind.
Bottom line: As long as stay within your budget when you buy and make your payments on time, you should have no problem getting the furniture you want.