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Does Financing Furniture Hurt Your Credit?

Does Financing Furniture Hurt Your Credit?
Austin Kilham
Austin KilhamUpdated March 3, 2023
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Whether you’ve just moved and need to outfit your new digs or you’re looking to replace an old sofa and chairs, new furniture can be expensive. If you can’t afford to pay for it in cash, there are a variety of financing options you could consider. But first, you may be wondering, does financing furniture hurt your credit? Or does financing furniture build credit? In fact, some financing options may impact your credit score in different ways. That’s why it’s important to understand what’s involved beforehand.Read on to learn what you need to know about financing furniture.

What Is Furniture Financing?

When you finance a furniture purchase, you’re taking out a loan, such as a point-of-sale loan, or a line of credit that allows you to acquire the furniture right away while paying off what you owe over time with interest. With a loan, the interest rate you’re offered will depend on the type of loan you’re considering and your credit score. For example, secured loans that are backed by some sort of collateral may offer lower interest rates than unsecured loans. And both these options may offer lower interest rates than credit cards. Borrowers with higher credit scores are seen as more creditworthy and less of a credit risk than those with lower scores, and lenders may be more willing to offer them loans with lower interest rates. Borrowers with poor credit may have a hard time securing a loan, and the loan options that are available to them may have relatively high interest rates.

Furniture Financing Options

There are a variety of furniture financing options you can use, including loans. Here’s what you need to know about each type to help choose the one that’s best for you. 

In-Store Financing

Many furniture stores offer in-store financing that allows you to buy the furniture you want without paying the entire cost up front. Typically, with in-store financing, you spread the cost of the furniture over many months, which may be a more manageable payment method.Some stores might offer an interest-free period to entice you to finance the purchase. You’ll be charged no interest if you can pay off your balance in the specified timeframe. However, if you can’t pay the full amount by then, the interest rate on what you owe may be higher than other financing options.  

Buy Now, Pay Later

Buy now, pay later programs are an in-store type of payment plan that allow you to break up a purchase into a series of smaller payments. For example, if you’re buying a $300 chair, you might pay $75 up front and $75 each month for three subsequent months. You typically won’t pay any interest as long as you make payments on time and in full. However, the interest-free period may not last for the life of the loan, meaning you could be left with interest payments in the future. Also, some offers may include monthly fees that are added to the payments, and there might be hefty fees for missing a payment. Be sure to read the fine print. 

Personal Loans

Personal loans are typically unsecured loans (meaning they require no collateral) that borrowers repay in regular installments with interest. You can take out a personal loan from a bank, credit union, or online lender. Personal loan amounts vary by lender and can range from a few hundred dollars to $100,000. There are a variety of ways to use a personal loan, and buying furniture could be one that makes sense for you. You’ll pay interest on the amount you borrow.Interest rates depend largely on your credit score, and are about 8.73% on average, according to the St. Louis Federal Reserve (FRED).  Before applying for a loan, be sure to familiarize yourself with your lender’s personal loan requirements as well as any additional fees you may owe, such as origination fees. 

Credit Cards

You might consider using a credit card to purchase new furniture, especially if you can pay off your statement each month. However, if you carry a balance from month to month, you will owe interest on your purchase, and credit card interest rates tend to be very high. The average interest rate is more than 15%, according to FRED.  What’s more, credit card interest compounds, so the longer you carry a balance, the more money you’ll owe. Consider this carefully before using credit cards to make big purchases. 

How Does Financing Furniture Build Credit or Hurt Your Credit?

Financing furniture can help or hurt your credit in a couple ways. It can hurt your credit because securing financing often requires a “hard pull” on your credit report. This is when a lender requests to see your credit history as part of the loan application process. Hard inquiries usually show up on your credit history and can have a slight negative impact on your score that is usually temporary. Why? When lenders see a hard pull on your report, they know you’re shopping for new credit, which might have an impact on your creditworthiness. A loan can have a positive effect on your credit score if you make payments on time and in full. Consider that payment history makes up 35% of your FICO® score. A loan can also help boost your credit mix and length of credit history, which may also have a positive impact on your score.  Missing payments or defaulting on your loan will lower your credit score, which can make securing financing in the future more difficult and more expensive. Note that buy now, pay later options don’t usually require a hard pull on your credit, but they also don’t help you build credit. On-time payments aren’t usually reported to the credit reporting bureaus. However, missed payments might be reported, which can hurt your credit score. 

Is It Smart to Finance Furniture?

Financing furniture may be a good idea if you can do it without paying interest. For example, you could pay off in-store financing before the end of an interest-free introductory period. Otherwise, when you finance furniture and pay interest, the furniture costs you more than it would have otherwise. For example, if you finance a $2,500 sofa at 9% interest over a two-year term, you’ll end up paying approximately $240 in interest over the life of the loan. If you can, it may be better to save up for a furniture purchase over time so you can pay for it in cash. But if that isn’t possible or you need the furniture right away, shop for loan options with low rates to ensure you’re not paying more than you need to. 

Compare Personal Loan Rates

If you’re considering furniture financing, personal loans may offer lower interest rates than credit cards and in-store financing. Lantern by SoFi can make it easier to explore your options. Our personal loan comparison tool can help you compare lenders, terms, and personal loan interest rates quickly to find the best loan for your needs.

Frequently Asked Questions

Does financing furniture help your credit?
In what ways does financing furniture impact your credit score?
Is financing furniture better than purchasing the furniture in cash?
Photo credit: iStock/asbe

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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