Financing furniture options sound like a great idea when you're looking to spruce up your home on a tight budget, but are those no-interest, no-payment offers as good a deal as they seem? Not usually.
Furniture financing offers typically carry the following little-known pitfalls:
They hurt your credit score. You plan to make regular payments when you finance your furniture, so your purchase should help to build your credit history and boost your score, right? Unfortunately, no. Typically the companies that furniture retailers use to finance your purchase are seen as creditors of last resort. You may have a great credit history, but just having credit through one of these companies makes you look like a credit risk and damages your record.
They kill your negotiating power. Cash is a powerful negotiating tool. Ask a salesman to give you a discount for paying cash, and you'll probably get it. Not so when it comes to financing your purchase. This means you'll often pay more for the privilege of delaying your payment.
What else could a cash purchase get you? Think free delivery, free setup or freebies like an extra piece of furniture. If you can dream it, a cash purchase may be able to help you to obtain it.
They anticipate future income. You know how much money you make today, but there's no way to know how much you'll make tomorrow. You might lose your job, become ill or suffer a financial hardship that you didn't prepare for. Unfortunately, financing plans aren't forgiving. They simply won't erase your debt just because your circumstances have changed. This simple fact makes financing any purchase a risk.
They carry stiff penalties and finance charges if not paid on time. No-interest and no payments for x number of months sounds like a dream offer when you need something before you can afford to buy it, but what happens when you fail to pay off your balance before the end of the offer's term?
Unfortunately, that good deal immediately turns into a very bad deal. Typically you'll be expected to pay interest on the item going all the way back to the date of purchase, and since store financing generally carries a much higher interest rate than most credit cards, the interest total can be quite shocking.
What's the Alternative?
Cash is definitely the best alternative to a store finance plan. If you don't feel comfortable handing over cash to a store, a debit card will yield the same result with the added protection of the bank and the issuing credit company.
Realistically cash may not always be an option. For the times when you're forced to finance a purchase, use a credit card instead of the offered in-store financing. You'll probably have to start making payments right away, but at least you won't have to worry about inflated interest charges or unnecessary damage to your credit.
Buy your new furniture on your terms, not someone else's.
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