Why It Is Ridiculous To Finance Furniture
One of the most ridiculous things that you can do is finance furniture. There is simply no way to do it wisely. Still, thousands of people are doing it every week and, there is no better way to say it, it is a dumb decision. You think depreciation on a new car is bad, consider what your furniture is worth after you get it home and park your backside on it. It won’t be worth much and financing a depreciating asset like furniture is just not smart.
Still considering it? Let’s look at the most common ways people finance their furniture.
Store Credit Cards
One foolish way is with a store credit card. The major furniture stores all try to lure you in with some great finance deals. 0% interest is usually the case. All you have to do is pay it off in 5 years.
So first off, 5 years! Should you really be paying on a couch for 5 years. What is that couch going to look like in 4 years? Probably not too good and you’ll only have 12 more months of payments left. Imagine yourself in a few years, looking at that stained couch and saying to yourself, “Yep, one more year and it’s all mine.”
But hold on, what happens if you do not get the couch completely paid off in 5 years? Simple, all of that interest is applied to your account. It turns out that the financing wasn’t interest free, it was just deferred interest. Big difference. Now, 5 years later, you failed to pay off the last $100 in time and now have to pay all of the interest that has been deferred. That is 5 years of interest at 24% interest. Ouch!
Now, you might be saying to yourself, “how much interest could there be on one little couch?” Well, it wasn’t just one couch. You went in there for a simple couch but they approved you for up to $10,000. Wow, weren’t expecting that. It is just too tempting. Look at all those beautiful completed rooms on display. Let’s just buy the whole room of furniture. While we are at it, the bedroom is looking pretty shabby. let’s take care of that. Before you know it, you have charged up that store card.
Now, you have to pay off close to $10,000 but it’s okay, you have 5 years to do it. That’s just $2000 a year. Problem is, without them forcing you to make payments that will get the loan paid in time, which they won’t, you will never get it done. It is just too tempting to pay the minimum, knowing that you will “catch up” later. That is just human nature. So, in 5 years, BOOM, thousands of dollars in interest appear on your statement.
Don’t Do It!
Rent To Own
Another bad idea. You have probably received the flyers in the mail for Rent To Own companies. Make a low weekly payment and you get the furniture of your dreams delivered to your home. These companies prey on people with no credit who are desperate for money to furnish their home.
First off, check out the list prices on the furniture. It is never fair market value. It is usually cheap furniture, marked up dramatically. They show a high price on the furniture so that when you look at the total cost of your financing, it won’t look like too bad of a rip off, which it is. The cash price, not that anyone is paying cash at a Rent To Own store, is usually such that for the price of bonded leather couch (cheap) you could get a full grain leather couch at a good furniture store.
Second, what kind of fees are they adding to your order, Is there a hefty delivery fee or set up fee. Normally. Most real furniture stores charge minimal prices for delivery or even offer free delivery. Not the Rent To Own stores, they add it to the cost to get your weekly payment.
And about that weekly payment. Who pays for something weekly? Why on earth would they list a weekly payment? Oh, I know, so they can make the cost seem like it is not so high. $70 a week does not sound bad for a “pleather” couch. $280 a month though, that is a little tougher to look at. When you look at the real value of the furniture being financed, you are looking at payday loan levels of interest.
Finally, there is the biggest catch of all. What happens if you miss one single payment? They come and get your stuff. They have written up their contract as a secured loan so they have an interest in your furniture until it is paid in full. Don’t want to give it back? They will be happy to get the sheriff involved.
Don’t Do It!
Personal Credit Cards
The last big way that people finance their furniture is with a credit card. You get 2% back after all, so why not?
There are two reasons you shouldn’t finance your furniture with a credit card. For starters, it is just too easy to overspend when you use a credit card. If you are not seeing the money come out of your bank account or not handing over hard cash, you can easily over do it. Go in for a couch and come out with a sectional, and a bed, and some end tables, etc, etc.
Next, you have to consider the interest that you will be paying. With the average credit card interest in the country being 17%, it will dwarf that little 2% you got back from your rewards. $3000 in furniture would yield you a hefty $60 cash back bonus. Pay it off in three years at 17% and you will pay $850 in interest. Stretch that out to 5 years and you will pay $1473 in interest. Not such a good deal is it?
Don’t Do It