Living room and bedroom furniture sets can be expensive. Even a simple couch or mattress can run you several hundred dollars. That makes financing an attractive option, but is it the right choice for you? There are a number of factors to consider before answering that question.
What is Furniture Financing?
Any time something is bought on credit, it's considered financing. There are different types, all of which offer advantages and disadvantages to the buyer. The most common furniture financing tools are layaway, credit cards, rent-to-own, and retailer financing.
Pros and Cons of Layaway
Layaway is an attractive option because the buyer can generally put a small amount down and then pay off the balance over time. The furniture belongs to the retailer until the final payment is made, at which point the furniture is delivered or made available for pickup.
As appealing as this arrangement is, there are some potential hazards to it. If the buyer fails to meet his or her payment obligations, they may not get back any money they've already paid in. There is also the danger of the retailer going out of business before the deal is complete.
Pros and Cons of Credit Card Purchases
Putting the entire purchase on a credit card might be the easiest way to buy that new kitchen set, but is it the wisest way to do it? With this type of financing, the buyer takes possession of the furniture right away. Credit card companies also offer purchase protection.
On the con side, interest rates on credit cards are high. You might be better off going with in-store financing or taking out a personal loan from the bank to buy your furniture. Investigate both of those options before pulling the plastic out.
Pros and Cons of Rent-to-Own
Buyers without good credit or enough cash to buy furniture outright may have to look at rent-to-own or lease-to-own agreements with stores that specialize in that type of thing. Rent-A-Center and Aaron's are two of the more well-known businesses in this category.
With rent-to-own, you can immediately furnish a room without spending hundreds of dollars. Short-term renters do this often. For folks looking at longer-term use where they fulfill the entire contract, it's a bad choice. You'll end up paying double what your furniture is worth.
Pros and Cons of Retailer Financing
Most furniture dealers have their own in-house financing. They may even offer 0% interest for the first year, as an incentive to pay off your furniture early. If your finances are in good shape and you can comfortably make payments, this is definitely the best of these four options.
The downside comes if you miss a payment. Those incentive deals for 0% interest dissolve and you may get stuck paying interest of 20% or more along with late fees. The furniture store can also repossess the furniture if you miss too many payments.
Paying Cash is Always the Best Option
With major purchases of several hundred dollars or more, paying cash is always the best option. Furniture salespeople will haggle on pricing, so having cash on hand is a powerful negotiating tool. Think about saving money, wait for a sale to happen, then buy your furniture.
Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: The Pros and Cons of Furniture Financing
