Whether you’re moving into a new house or redecorating your home, buying furniture can be quite a burden, financially speaking. That is why many Americans plan on financing furniture with the help of a credit card. But is it a smart move or will you end up paying more than you originally planned? Let’s see what the experts have to say on the topic.
How Good Are Store Credit Cards for Financing Furniture?
There is no other way to put it. Typically, financial experts advise against getting a store credit card when planning on financing furniture, for the following reasons.
- Their interest rates are very high – back in 2014, the largest retailers in America issued credit cards with an average APR of more than 23%. All the other non-store cards had an APR of 15%. It’s clear to see that, if you go for this type of financing, and you don’t pay it back right away, it will cost you an arm and a leg later on.
- Their credit limits are low – Indeed, this low-set limit on your credit card will keep you from spending more than you should. Even so, if you again compare store credit cards with non-store ones, you’ll see that the latter will give you a much higher limit as far as finance goes.
Apart from that, it will look bad on your credit score. Here is the reason. Later on, when you apply for another loan with a bank or any other financial institution, they will surely look at your credit history and score. One of the criteria they’re looking for is the ‘ratio’. In other words, how much did you spend in the past out of the entire sum that was put at your disposal by your former lender?
The equation is the following one – the less you spend out of the total amount you could have, the better it will look, and it will rank on your credit score.
Going back to the credit card for financing furniture, given the fact that the issuer sets such a low limit, you will be obliged to spend all of it. The result? It will look bad for you in the future when you apply for another loan.
- Credit cards for financing furniture or any other type of shopping such as this one are usually feeble – this means they do not offer some crucial assets, such as buyer protection, extended warranty, not grace periods.
Out of the three, the latter is the most important for you. If the credit card of your choice offers no grace period, they might ask you to start paying interest from the get-go. Needless to say, you will feel it in your wallet.
- The credit inquiries might lower your credit score – Every single time you apply for any kind of loan your lender will check your credit score. Credit cards issued for financing furniture are no different. The problem is every time they do that they cause the credit score to drop a few points. It might not seem like such a big deal now, but maybe in the future, you will want to buy a house, a car or get a mortgage. You will definitely understand that those few points matter and that it was not worth losing them over a new couch.
- They provide supplementary temptations – more often than not, targeted stores, including online ones, send the card issuers all sorts of promotions and discounts. They, evidently, notify you that you can benefit from them as long as you purchase the items using that credit card and… you do. However, that is not healthy. Although it might be a discount, buying something you don’t, in fact, need, is never a good idea.
Here are some American companies that offer furniture financing deals.
- Ashley Homestore
- Taft Furniture Company
- Mor Furniture
- Bobs Discount Furniture
- HOM Furniture
- Kanes Furniture
- Bassett Furniture (they offer a credit card issued by Wells Fargo Financial National Bank)
- Furniture Mart
- Badcock Home Furniture and More
You can buy discount or underpriced signature furniture in all of these places, and get a good deal, as far as financed shopping goes. Remember to look at all the inhouse options and check your credit score before buying. If you want to stay away from poor deals and have that sense of ‘satisfaction guaranteed,’ stay on top of all the specials and choose the best one. If need be, ask for the store’s phone number and call to ask all the questions you want.
Where Do We Draw the Line at Financing Furniture?
Keeping in mind all that we said above about store credit cards, what happens when you want to buy furniture specifically? Maybe you want a new couch, king-size bed or a few decorating items to give your living room a new feel. Your issuer, along with its furniture store partners notify you about discounts and promotions as long as you use their card. Do the rules that we outlined above still apply?
Yes, they do. You need to keep in mind that, even if the retailer offers you a what might seem ‘crazy’ offer at first glance, things might not add up the way you think they do. One or two years without paying any interest or, maybe, not paying installments at all? Think again.
Why? Because even if you don’t have to pay it right away or for one or two years, the interest still exists. You need to read all the contractual clauses as well as the fine print as many times as it takes until you understand. What the stores are offering is a postponement of the interest, not a pardon. When the time is up, you will have to pay all the interest retroactively plus the monthly installments and their interest.
Needless to mention, this will mean more money that you will have to pay when the time comes.
One crucial thing to mention here is the fact that the stores nor the card issuer for financing furniture hold any blame. All these things are clearly written in the contract. You simply need to take your time and read it through. If that be the case, get a financial adviser or someone who has already done this and ask for help.
Another thing you can do in this situation is to make the minimum payments even in that period. In this way, the money you will be paying back will be little, so that it doesn’t affect your daily or monthly budget. Also and more importantly, you will be paying back part of the sum you owe from day one. You won’t risk getting charged with extra interest or payments.
A word of caution – only put in minimum payments in that ‘grace’ period when the offer says you don’t have to pay anything. When the time expires, start paying the entire installment. If not, you will then be on the hook for retroactive interest as well as all the money you owe.
Apart from that, paying the minimum amount might seem smart and easy. This strategy has the allure of a financing furniture in bulk, furnishing your house and then only paying a tiny amount every month. It’s not like that at all. The less you pay now, the more you pay overall. This way of doing things actually expands the amount of time it takes until you pay back the whole original sum. By that time, you might have paid it three times over in value, just because you decided to go for the minimum amount.
If we were to draw a conclusion from everything that we read and analyzed on financing furniture by using a store credit card, that conclusion would be to think twice before you do it. Remember you can always save money!