Buying furniture is like buying a car. As soon as you take it from the store, it’s lost value. BUT, that’s not the right way to think about furniture purchases. In fact, that’s pretty grim.

The fact is, having nice and comfortable furniture can improve your enjoyment of your home and your lifestyle.

Also, you often get what you pay for. In our twenties, just out of school, my wife and I bought plenty of low-cost, assemble-yourself furniture. It looked decent, but much of it didn’t last nearly as long as quality furniture.

Our problem was that we wanted to wait until we moved into what will be our main family home before spending serious money on furniture. But, once we get our new home (we’re in the planning stages of building one), buying decent furniture will be part of the process.

We’re not 100 per cent sure how we’ll be financing our furniture, but we’ve done the research so that we know our options. I don’t think we’ll go too crazy, but we will make some big purchases, some of which we’ll no doubt finance. This article sets out our research findings for financing furniture.

Our date in a furniture store

When my wife and I just started dating, we ended up at a furniture store. We sat down on a super comfortable sofa and forgot about being in a furniture store while we chatted for 1.5 hours. The sales people kept coming by asking “is there anything we can help you with?” We finally got the hint and left… but we both laugh about one of our first dates lounging in a furniture store.

I digress… back to the main subject.

There is no one size fits all model. That is why there are several options for financing furniture. It’s important that you have at least a general understanding of each option so that you can make an informed decision on which is best for you.

DISCLAIMER: This article is not to be construed as financial advice. The publisher of Home Stratosphere is not a financial adviser. Instead, this article simply sets out information based on personal research about using borrowed money to pay for furniture. Please always do your due diligence whenever borrowing money for any purchase.

This extensive article explains the main options you have to finance your furniture purchases.

Alright, let’s get started…

Table of Contents Show

1. Layaway

2. Use Cash

3. Rent-to-Own

4. Credit Cards

5. Payday Loans

6. Retailer Financed

7. Home Improvement Loans

1. Layaway

In recent decades, layaway has become a popular option among consumers, especially during the holiday season. Most furniture stores offer a layaway program that allows the consumer to “reserve” their furniture for later pick up while they make regular payments. To some, this can be extremely appealing, but there are certain risks that can greatly out weight the possible benefits.

What is Layaway?

Much like the state lottery, a store’s layaway program prays on the most financially insecure. Layaway programs are highly beneficial for stores, but can often be a losing proposition for the consumer.

First, let’s examine exactly what a layaway program entails and how it could be seen as an attractive method for acquiring the furniture you need.

With layaway you make payments over time, but your purchases stay in the store until you finish paying for them. Though every store differs on their rules, most programs follow the same basic path.

The consumer chooses the items that they’d like to purchase.
The consumer is prompted to make an initial deposit. Some stores allow the consumer to choose the amount that they’d prefer, while others have specific requirements.
Over time, the consumer makes small payments, usually in weekly, bi-weekly, or monthly amounts.
Once the total purchase price (plus additional layaway fees) is paid off, the consumer is free to take their furniture home. They now own that piece exclusively.

One of the most notable benefits of any layaway program is that there is no interest. While other payment methods such a buying with credit or borrowing from a lender may require a sizable sum added on to the total amount in the form of interest.

Here’s an example:

Let’s say that you were to purchase a $900 leather chair to a credit card for 18% interest in December. If you were to pay off the total sum for the purchase by February, you’ll have paid an additional one month’s interest ($162).

Also, unlike purchasing furniture on credit, stores do not conduct credit checks in order to approve consumers for the layaway program.

Obviously, this is fairly straight forward and may seem like an enticing offer, especially if you don’t require the furniture until a later date. However, there are a lot of hidden fees and a myriad of different risks involved.

Though there is no interest collected for the layaway program, the store tacks on additional fees in the form of a down payment.

These fees will vary depending on the particular store that you choose to do business with, but some stores have been known to charge as much as 10%. For high ticket items, this can add up to a hefty amount.

Additionally, consumers need to adhere to a strict term of payment. Again, this will depend on the store that you choose to purchase from, but most stores will require the consumers to pay by a specific date.

The terms of payment may not necessarily require the consumer to pay on a weekly, bi-weekly, or monthly time span. However, they may instead require the consumer to have the full cost of the furniture paid off by a specific date.

The Potential Risks Involved with Layaway

As mentioned before, the layaway program often sounds like the most suitable option, but can quickly turn out to be a disastrous decision.

Life has a way of throwing curve balls our way occasionally. This can come in the form of added expenses force you to either miss payments or to completely back out of the layaway program all together.

It’s possible that the payments that you’ve already made on the purchase could be lost. In that case, you may as well have emptied out your checking account and handed the store your hard earned cash. It’s simply not a risk worth taking in most cases.

Some stores may reimburse you by offering store credit. In this instance, the money you paid is not necessarily lost, but can only be used at that particular retailer, which isn’t ideal either.

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2. Good Old Fashioned Cash

Before you turn to credit cards or look at various loan options, the indomitable first choice for financing your furniture need should be old fashioned cash, dough, moola.

Whatever you want to call it, cold hard cash will always be the most prescribed method for making a purchase. Why?

1. Pay no interest: Unlike every other method of finance, once the purchase is made, there are no additional fees or interest rates, which means that paying in cash is undoubtedly the most affordable option. A piece of furniture is a depreciating asset, meaning that it loses value over time, so by paying interest on something that is only dropping in value, means that you are losing money in two directions, which is never a good thing.

2. Avoid debt: When paying in cash, there is no possibility of acquiring debt. Unless properly mitigated, debt can bog down future finances for many years to come. Relinquishing debt should be a priority for any adult.

3. No risk of furniture repossession: The most satisfying benefit of buying with cash is that you will own the furniture outright which give you more options. If you took a loan out to purchase furniture, and you failed to complete the required payments, the lender could then come and take your furniture. When you own the furniture outright, there is no looming debt hanging over your head and you can sell the property if you so choose.

Again, I want to re-iterate that every payment option that I’ve presented today has its positives and its negatives. There is no one size fits all option as every person’s unique situation will dictate what works for them.

As much as I’ve built up the need to pay using cash, there is a downside; in order to pay for your furniture in cash, you need to have enough saved up in your account.

According to a 2012 report published by the document management services company, Pitney Bowes, the average savings account balance in the U.S. was $5,923 in 2011 [1]. Of course that doesn’t take into account for wealth inequality, but if you happen to fall into the category of people that has ample amounts of money stashed away, then this might be the perfect time to dip into your savings.

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3. Rent-to-Own

Prospective furniture buyers often find themselves in a unique position where they are emotionally prepared to invest in their new furniture, but aren’t quite financially prepared.

Whether the issue is a bit too much debt, a lack of funds for a down payment, or their credit profile is not quite up to par, furniture buyers might be inclined to wait until they work these issues out prior to investing in new furniture.

There may come a time, though, where “the waiting game” simply isn’t a solution. What if your current furniture is damaged and needs to be replaced immediately? What if your credit is less than admirable, but you still have the ability to pay monthly sums? What if your credit is solid, but the cost for the furniture exceeds the amount you can purchase with your credit card?

For those that live pay check to pay check, especially, this can put you in quite a predicament. With furniture prices often reaching the thousands, it could be detrimental to your own finances to make such a purchase. Should this automatically disqualify you from taking home the furniture that you’ve had your eye on for so long?

After all, everyone deserves the ability to furnish their home in some way. Luckily, there is another option. In such cases, a rent to own agreement may be the optimal solution for some.

According to Consumerreports.org, the rent to own industry has accumulated over 4 million customers as of 2011, and the 8,600 that participate, gain approximately $7 billion in total sales [2]. Needless to say, this has become one of the most popular options for financing furniture within the US and Canada.

Here’s how rent-to-own works:

Though they vary in exact terms, a rent to own agreement is a signed plan where the retailer allows you to take the furniture from the merchant location directly to your home without having to pay the full upfront cost. Within the agreement, the consumer acknowledges that they will be required to make regular payments (either weekly or monthly).

If regular payments are interrupted, the retailer obtains the right to repossess the furniture at any time during the term agreement. Additionally, the consumers can cancel the agreement, without penalty, at any time by returning the furniture.

The monthly payments are typically low and often times there isn’t even a credit check involved.

All rent to own agreements should provide the monthly amount that is required to pay, the total amount required to pay, and the total length of the agreement. Once the end of the agreement term is reached, the furniture will be yours to own and do with what you please.

The obvious benefit is that there is no massive upfront payment, which is ideal for those that are in dire need of new furniture, but lack the funds to finance it right away.

Disadvantages to Rent-to-Own Furniture Purchases:

It’s important to remember that although this may sound like a sensible option for some, it equally benefits the retailer as well, often to your detriment.

While the payments are generally low, allowing an incredibly affordable option for those that lack the funds to outright buy an expensive piece of furniture, the term lengths can go on for quite some time (several years in many cases).

Eventually these small payments add up to a significant amount of money.

One of the most popular rent to own retailers in the world is Rent-A-Center. On the surface, their terms seem reasonable, but if you were to add up the payment terms, you’d likely find that you will end up paying 200-300% of the actual worth of that furniture.

Hypothetical:

For instance, let’s use a hypothetical example of a $1,000 couch. Like any good consumer, you’ve done your research and know that every competing furniture store is selling this particular couch for $1,000 on the dot.

Unfortunately, you don’t have $1,000 to pay upfront, but you absolutely must have this couch, so you visit a local retailer that offers a rent to own agreement. By their terms, you only need to agree to pay $65 a month and you can take that highly sought after couch home with you that day…but there’s a catch.

Sure, $65 a month may seem incredibly reasonable, but the total length of the term is for 3 years. That means, before that couch becomes your property, you will be required to make 36 payments. If we multiply $65 X 36 payments, you are actually paying $2,340 for a couch that is priced at $1,000.

If at any time during the term you discontinue payments, then you forfeit the right to keep the couch. Let’s say that you are 30 months into your rent to own contract and have already paid $1,950 for that $1,000 couch, but some abrupt, unforeseen circumstance occurs and you simply can’t afford the additional payments. The retailer retains the right to take that furniture back and you essentially lose the close to 2 grand that you’ve already paid. Bummer…

Here’s another very real scenario. Let’s say that something does come up and you can no longer make the monthly payments, so you are required to return the furniture. When the retailer receives the furniture, they notice that there is some additional wear and tear.

Not to mention that many rent to own businesses have taken a lot of heat in recent years for unethical business practices [3].

At this time, you will be forced to pay for repairs to a piece of furniture that you no longer have in your possession, which can easily destroy your credit score. Yes, rent to own is a slippery slope for anyone, but is often the ONLY recourse of action for those that simply can’t afford to pay in full or lack the credit to finance furniture up front.

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4. Financing Furniture with Credit Cards

Personal credit cards can be a convenient way to pay for your home furnishings purchases. There’s no additional paperwork to fill out, and since you already pay your bill, it won’t add any new bills.

As technological advancements continued to increase, more and more people were turning to plastic as their preferred method of payment. Then, seemingly out of nowhere, the 2008 financial crisis struck and purchasing goods on credit became somewhat of a taboo.

Few people understand how closely related the housing market and the furniture / appliance industry really are. When the housing bubble burst, it caused quite a few issues with furniture retailers.

Since then, the economy has rebounded quite nicely and many people have returned to buying goods via credit. Although there are still those out there that are weary of making a significant purchase with their credit card, the overall amount of people using them has returned to what they were pre 2008.

Of course this brings us to our big question:

Should you use credit cards to finance the purchase of your furniture, and is it safe in the long run?

Like every other payment method that we’ll discuss in this post, the specific needs of the person and their financial situation will likely play the biggest role in how you decide to purchase your furniture.

There really is no “right” or “wrong” way to finance an expensive investment, there is only what’s “right” or “wrong” for your particular situation.

To decide whether or not the use of a credit card fits your needs, we must first discuss what the use of a credit card actually entails and how it will affect you in the long term.

For those that are unaware, when you purchase something on credit, there is no immediate cost to you. That means that, even if you don’t have the cash in your account at that exact moment in time, your financial institution will make the purchase for you in the agreement that you will pay them back with interest.

Now, I hope you took notice of that last part “with interest” because the longer you put off the payment; the more you will end up owing in the long run.

Unlike with rent to own contracts, the credit card company will pay the full amount due to the retailer and you own that furniture from day one.

The downside to all of this is that you will be in debt to your financial institution, which can hinder your credit for later purchases (which rent to own agreements won’t). Your credit rating is like your financial footprint and when you default on your credit card; your livelihood will typically mirror your circumstances.

Though it is unlikely that the bank will come and seize your assets, it’s essential to pay off any debt that you may have to avoid being deemed a credit risk.

In extreme circumstances, the debt that you owe will be sold off to a third party collection agency. Once a collection agency gets involved, it’s almost guaranteed that they will use any tactic necessary to obtain the remaining funds, even if it means being aggressive to the point of harassment…which can be a hassle to deal with

The point in telling you this isn’t to scare you off from using credit cards. Quite the contrary actually. Credit cards can be an exceptional way to purchase goods that you may otherwise not be able to obtain at that give time…as long as you can pay the debt off in the long run.

For those that have a consistent source of income, there are still risks involved because you never know when unforeseen complications may arise that prevent you from being able to pay what you owe.

As long as you understand the risk and have the ability to pay off your debt, using a credit card can be a valuable solution to acquiring the furniture that you desire.

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5. Financing Furniture with Payday Loans

Bad credit. No credit. Who needs credit when you can get cash online almost instantly?

One particular method of obtaining money on short notice, that has become increasingly popular in the last few years, is known as a payday loan.

A quick Google search will yield hundreds of lenders that will be willing to provide you with funds within minutes of your online application.

Payday loans operate as a short term cash solution for people that require immediate access to additional money without the long drawn out process of paper work and the hassle of credit checks.

The lack of a credit check is also why payday loans have been dubbed the “bad credit loan” because it’s become one of the most frequently used sources of cash for those with less than optimal credit.

Most payday loan providers have a few basic requirements before they allow you to access your funds (none of which have anything to do with your credit).

You must have a source of re-occurring income.
You must make at least $1,000 per month

Each lender will have their own basic requirements, but as long as you have these two covered, it’s almost guaranteed that you’ll receive a loan.

You might be wondering, “If they’re willing to lend money to people with bad credit, then how do they ensure that they actually get paid back?” Good question.

Payday loans typically need to be paid back within a few weeks time and the interest rates are incredibly high.

Here’s an example:

A $500 cash advance on an average credit card that is repaid in approximately a month may cost you $14 in finance charges and an annual interest rate of about 5.7%. A payday loan, on the other hand, would cost you $17.50 per $100 for borrowing the same $500 (so $87.50), and would cost $105 if renewed once, or 400% annual interest.

As you can see, it’s a far more costly means of obtaining money than most other methods.

Before jumping into any financial situation, it’s important to fully assess the possibilities. Can you afford to pay back your loan with interest? If there is some possibility that you could miss the deadline for your payday loan, then the amount owed will only increase overtime.

So, for the sake of purchasing furniture, a payday loan should be your last option as it is by far the most expensive and the riskiest. Unless all possible options are exhausted, and you absolutely positively must buy new furniture, then it may be best to avoid payday loans like the plague.

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6. Retailer Financed

No cash on hand to buy that dining set that you’ve fallen in love with? Not a problem…at least for the retailer.

Now most major furniture merchants pitch their own type of financing programs to their consumers; especially to those that don’t pay with cash. In order to make this happen, most retailers will pair up with a lender for an interest free plan where borrowers pay 0% interest for the first tear if they make each monthly payment on the agreed upon time.

Retailers pitch this idea to draw in people that are interested in purchasing new furniture, but don’t currently have the money to do so.

Obviously, people hear “0% interest for the first year” and will immediately jump at the chance. After all, with no interest, they’d completely cut out the middle man (other lenders) and work directly with the retailer, and with 0% interest, they’d save a ton of money in the process, right?

Well like every other loan or finance option available, there is a catch…

If you miss a payment, the interest rate could skyrocket to 20% or more virtually overnight, costing you an arm and a leg. These types of plans that feature a deferred interest for up to a year can seriously wreak havoc on a consumer’s credit score.

To make matters even worse, the interest rate increase will be retroactive. Meaning, if you chose to finance a purchase through the retailer and were unable to make payments in the allotted time frame, they could then charge you back-interest in the previous months.

The practice of retroactive interest rates have come under serious fire in recent years because most believe it to be an underhanded method for lenders to milk more money out of their borrowers. Believe it or not, it was actually a target of President Obama’s CAED Act, which was meant to help provide safeguards for borrowers [4]. Although they did a solid job of containing retroactive interest rates, they didn’t fully prevent them.

If you play by the rules, you’ll receive your 0% interest and save a serious chunk of change. However, if you happen to miss the payment date or misinterpret the day that you’re supposed to make your payment, then you could end up with a hefty interest rate hike.

It essentially becomes a gamble against time. The borrower is betting that they’ll be able to pay off the balance before the end date. Often times because consumers are bombarded with this offer of 0% interest from the moment they turn on the TV until they’re at the register within the furniture store, they are banking on paying no interest, and are far less likely to shop around.

There is nothing inherently wrong with using a retailer’s line of credit, and can be extremely advantageous, as long as you are absolutely certain that you can pay off the required amount in the designated time, or else it could become an absolute nightmare.

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7. Home Improvement Loans for Financing Furniture

In the Definitive Guide to Home Improvement Loans that we recently published, I covered the topic of home equity loans in great detail. In order to avoid beating a dead horse, I will simply give you a brief synopsis on how you can leverage the cost of your home to obtain the funds that you need to purchase your furniture.

Home equity loans (also known as a second mortgage) allow you to borrow money using your home as collateral using the amount of equity in your home to determine the amount that you would be allowed to borrow.

Naturally, the bank will want to receive what it is owed and the only way to ensure that this occurs is to put your home up. Home equity loans typically operate on a fixed rate, which must be paid back in monthly installments over the course of 10-15 years.

For those that have a single discrete expense, a regular home equity loan may be the right move. You’ll receive the money that you need, you’ll be able to purchase your furniture, and you can begin paying off your loan in monthly installments that don’t increase over the course of the loan agreement.

Obviously, if you’re simply furniture shopping, then the size of the loan that you’d require would only come to a minuscule amount of the total worth of your home, so there is no need to fret over whether or not the bank will take your house if you default on payment.

In fact, there is a specific type of home equity loan available for this exact purpose, known as an appliance / furniture loan. Most lenders offer this form of finance and they’re relatively easy to obtain.

An appliance / furniture loan can help you purchase the items that make your home more livable, even if you have a less than stellar credit score. Most lenders will provide appliance / furniture loans of up to $5,000, and if you require more, then a traditional home equity loan is always available.

The true benefit with a home equity loan comes with the fixed, miniscule interest rate that comes attached. (for figures on interest rate and how lenders calculate your payments, please refer to The Definitive Guide for Home improvement Loans)

How Does a Home Equity Loan Stack Up Against a Credit Card?

You may think that it’s more advantageous to use your credit card for financing a large purchase like a dining table or a refrigerator, than to take out a loan, but you’d be wrong, especially if you’re only making the minimum monthly payments on your credit cards.

Large purchases on your credit card will only increase the minimum monthly payment, making it much more difficult to pay off the balance. When it comes to credit cards, the monthly payment is mostly interest and not much principal (the amount of money you originally borrowed), which is why it could take years to pay off a single balance. Plus, if you miss a payment, then the issuing financial institution may increase the interest rate even further, causing the monthly minimum to skyrocket.

With a simple appliance / furniture loan from your bank, more of your payment will go towards paying the principal, which will allow you to reduce your loan balance much sooner than if you made monthly payments on your credit card. Additionally, when you borrow money from a lender and make your installment payments on time, it will help you build further credit with future lenders and banks.

Where To Go From Here?

The next step in the journey to acquiring the furniture you want so dearly is yours and yours alone. It’s up to you to take the information that has been provided to you and decide your course of action as to how you are going to purchase the furniture that you want without digging yourself into a hole of debt and additional payments.

In order to do this, you will have to take a look at your current financial situation.

How much cash do you currently have available?
Can you afford additional debt? It’s imperative you carefully assess your current and future monthly budget.
What’s your credit score? Can you get a decent interest rate?
Do you have low-interest borrowing options such as home equity loan or unsecured line of credit?
Are you in dire need of the furniture now, but lack the funds?
Are you willing to chance your future finances on one of the riskier options such as using a credit card or payday loan?

All of these questions need to be taken into account before an informed decision can be reached. Then you must find which finance plan fits your specific criteria. No, it’s not easy, but if done correctly, you will have the furniture that you’ve had your eye on and most importantly, your financial future will be far more secure.

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