Home isn’t just a place, it’s a feeling. It gives you pleasure and makes you comfortable. Even the furniture decors and various aspects of the home can play a major role in soothing our soul. Everyone wishes for a well-furnished house. It will be a great dream for everyone to have a comfy couch and furniture where you can spend your leisure time. A classy and comfortable furnished product adds elegance to the house. So we all accept the fact that a well-equipped furniture has an inevitable role to make a place feel like home.
Buying furniture can be overwhelming because a lot of aspects like size, colour, comfortability and price should be taken into consideration. Desirability along with affordability plays a decisive role in financing furniture. It’s better to think twice before financing furniture.
What is Furniture Financing?
It is paying for furniture over a period of time than purchasing the furniture by paying the full amount at the moment of buying. It
allows a person who does not have enough money to buy products like furniture, to pay the money over a particular period of time. Financing furniture is a big purchasing decision. Is it wise to finance furniture or is it a potential disaster to finance furniture? There are various methods for financing furniture.
Layaway allows you to put a small amount at the initial stage and then pay off the balance over time. But the furniture belongs to the retailer until you make the final payment. If you fail to pay the money, then the already paid money will be lost. Some stores allow the consumer to choose the initial amount that they prefer to pay. It makes the payment weekly or monthly. Even though it doesn’t have interest it can have hidden fees. Some stores take on additional fees.
At times it can be a dangerous option as the retailer can go out of business.
2 USING THE CREDIT
The usage of credit is the other financing for a furniture option. The policy of a zero per cent interest rate makes it
more attractive. To benefit from the introductory price it is mandatory to repay the amount within a specific time period. The steps include applying for a credit card and having a hard
inquiry. For this method of financing, you need to have a minimum monthly due on your
statement. The terms and conditions should be well-read and be well aware of the
post-introductory interest rate and how long the duration is before you lose. If unable to pay on time it can lead to excessive fees, poor credit
scores, and bankruptcy. In this method, you can take possession at that point. It is good for those who have good credit points.
- RETAIL FINANCING
Retail financing is a type of loan or line of credit—used by retailers and real estate
companies. It is a better way to shop and a smarter way to pay. The main
A feature of retail financing is that it helps to have special offers. It provides 0 per cent interest rates in the first year. It is the best option if your finances are good. The disadvantage is that the 0 per cent interest rate dissolves if you miss a payment.
- PAY THE CASH
Paying cash is the best furniture financing option. It is a better and more powerful negotiating tool. The main feature is that there won’t be any debt. If you hate to have interest rates and
instalments it’s better to buy on ready cash. In online stores, you can use the debit card
facility. If you are unable to have enough money, you can save up the money to buy it later.
- PAYING IN INSTALLMENT
The instalment will help to split up the cost of a large purchase into monthly payments with a specific number of months. The selection of the number of months depends upon the purchase price and various other factors.
IS FURNITURE FINANCING A WISE OPTION?
Most furniture stores convince people to buy huge and in bulk. If a price tag shows 25000 it would make you realize how expensive the product is. But if it shows just 1500 the monthly price after financing it might make us feel the cost is less. The stores and salespeople would only try to focus on the monthly payment and not on the true value which makes the consumer feel that the price is low. So it’s better to avoid the financing of furniture and better to negotiate for discounts.
The financing of furniture can affect your credit. If you are in bad credit then you will be in trouble while financing a larger purchase. Also with bad credit, you won’t be eligible for a 0 per cent interest rate. The financer can pull a copy of your credit report and it can lead to a drop in your credit points. When the financer requests the copy it will be noticed by the credit bureaus and they will keep a record of it. More requests can worsen your score.
When you apply for a new loan then it can reduce the average age of your loan account. The financers only finance those with low debts and high credits. Once you pay the amount back correctly then your credit utilisation ratio will rise. At times financing of furniture can be a facade to make you spend a lot of money than what you can afford.
If you are not financing furniture the alternative way is to pay the cash. It helps to give the bargaining power as the seller gets the full amount. During financing, the
interest rates can be from 0% to 20%or higher. Special attention should be given to all parts
of the offer, the fees, and the number of payments. One should carefully scrutinize the deals and offers before purchasing them. When you open a credit card to pay for furniture, your account will be reported to the credit agencies that are responsible for coming up with consumer credit scores. If you make your payments on time and pay off your purchase in full in a timely manner, financing furniture can help you establish a credit history. Similarly, if your credit history isn’t the best, financing a new piece of furniture and making payments on time can help improve your credit score. When you establish a credit history or improve your existing credit score, it can make it much easier for you to obtain financing for other things in the future.
The most crucial aspect while financing furniture is to check the interest rates. Without a good credit score, the interest can rise from 10% to 20 %. The other factor is awareness of how long you have to make the monthly payment. There are certain disadvantages to furniture financing such as it can harm your credit if you cannot pay it back. At times it can cost more, after adding the interest and the added fees.
The 0 per cent interest can be a market strategy or tactic in the financing of furniture so be conscious to not be trapped in these tactics. These offers might seem great on the surface because you are made to pay low payment instalments. By financing, you can suddenly afford the furniture. Mostly the financing depends on you paying the full amount before the 0 per cent interest rate expires. There will be a deferred interest clause. This clause stipulates that if you don’t make on-time payments and pay off the loan in full by the end of the promotional period, you will owe interest retroactively. This can add up quickly, especially on expensive furniture, and dig you deeper in the hole.
The financing for furniture will be reported as a loan. The furniture loan mainly falls under the consumer finance loan. This can be seen as a negative credit. Also, they can be reported as revolving accounts which can cause a great dip in your credit. It’s always good to ask the storekeeper about the bank from which they provide financing, so you can do good research.
The option other than financing the furniture is to wait and save the money until you can afford it and then buy it. Else it will be better to buy used furniture products. Always try to ensure that your finances align with your financial budget. Financing the furniture if you don’t pay it off properly can lead to high interest. If you are able to plan ahead systematically it’s better to pay cash.
The financing of furniture has both pros and cons. It can give you interest-free loans with a 0 per cent interest rate. It also helps to enjoy new furniture right away. But the cons include mostly you end up paying more. It also increases the buying impulse as there is financing. The furniture can have poor resale value too. So before financing the furniture it’s better to do thorough research and finance wisely than cling to potential danger.
Aline Huseby is a Sales & Marketing Manager at ChargeAfter. She would like to share content on Finance Industry like Point of Sales financing, Buy now Pay later, consumer financing & Ecommerce financing for valuable reader.