Many large retail stores that sell furniture have a deferred-interest financing program that allows consumers to open up a store credit card in which there may not even be a required minimum purchase.

The store may let you finance the piece of furniture you buy for a 0% interest rate for a period. The interest-free window could be one to six years, depending on the creditor. After that point, the APR could jump to 20% to 25%, or even higher.

Ashley HomeStore, for example, has a store card with a 29.99% APR and it offers interest-free financing for up to 72 months. Rooms To Go’s store credit card has the same APR, and it offers 0% interest from September 2018 through February 2023.

The key thing to understand is the deferred interest clause that can come with these types of cards. This means that if you don’t repay the entire principal amount before the promotional window closes, the credit card company will retroactively charge all the interest it would have charged.

“They might have 0% interest for 24 months, but if you don’t pay it all off in 24 months, your interest is calculated back from day one and added to your balance,” said Jude Boudreaux, a certified financial planner and founder of New Orleans-based Upperline Financial Planning. “It’s a tremendous penalty.”

Let’s say the store offers to sell you a couch for $3,000, interest-free for 12 months. You will have no problem if you pay the $3,000 off in month 12. But if you leave even $1 on the credit card after that 12-month period is over, you might owe $750 in interest if the regular interest rate is 25%. Ouch.

– Read why rent to own furniture specials is a bad idea!

Enjoy an interest-free loan — if you meet the promo requirements

In-store financing could be a good deal as long as the buyer pays off the money borrowed within the 0% interest rate period.

For someone who doesn’t have enough savings to cover the furniture, instead of cashing their emergency fund, taking a 0% interest rate loan is a better, safer choice. But make sure you pay it off before the term is up to avoid retrospectively accrued interest.

Get new furniture right away

With a financing offer, you can go in and buy the items that you’ve been eyeing right away even if you don’t have all the cash on hand to purchase them.

The trick here is to stop yourself from going overboard to the point where you’re left with unaffordable monthly payments or you aren’t able to pay the card off before the promotional period ends.

“Be very careful because it’s easy to overspend when you have the ability to borrow like that,” Boudreaux said.

Help build your credit

Those who don’t have a stellar credit score may also have an opportunity to build credit with a store card. Often, the furniture sellers work with a financial institution that issues those store credit cards, and sometimes the credit company reports to one or all three credit bureaus. Check with the retailer before you apply for the card to see if it reports your payments to credit bureaus.

And, keep in mind, this can work against you as well. If you miss payments, it will hurt your score. Simply applying for new credit can temporarily ding your credit score. For that reason, ask the store if it offers a soft pull prequalification. You can get a good idea of whether you’ll get approved for financing without having to agree to a hard credit pull.

You may have to make a large interest payment

Zero-interest financing deals can be a great idea if you can pay off the money borrowed within the promotion period. But, in real life, many may not be able to do so. The big caveat here is that if you don’t repay the entire principal amount on time, you may be on the hook for interest.

On top of owing deferred interest going back to the beginning of the date of purchase, the credit card company will continue to charge interest until you repay the full amount owed. Remember, those cards carry pretty high-interest rates — higher than a typical credit card’s interest — so once the regular APR kicks in and you’re hit with all the deferred interest charges, it gets very expensive very quickly.

“They know that there’s a percentage of people that won’t pay the balance within the promotion time,” said Juan Guevara, a certified financial planner based in Colorado. “That’s how they make their money.”

Save up cash

Some people may not realize that if you want to buy furniture, you’re going to be making a payment no matter what. Instead of getting a loan, you might as well save up cash to pay for it. This strategy will keep you from the risk of having to pay high interest retrospectively if you can’t repay the loan within the promo period.

If you are disciplined enough to save up for a piece of furniture, the chances of you splurging are slimmer than someone who borrows money with a loan or credit card.

Offer to pay cash upfront and ask for a discount

Another advantage of purchasing furniture with upfront cash is a potential discount you might be offered.

As we discussed earlier, offering financing options costs money for the retailer. You are in a disadvantaged position to negotiate with the retailer for a discount if you take the financing deal. But if you offer to pay for furniture with cash in full, then you have the bargaining power.

Use a 0% intro purchase credit card

Before you accept a retailer’s in-store financing, even if it has a 0% intro APR, consider bringing your own financing to the table. There are some good 0% intro purchase APR cards on the market. And regular credit cards usually carry a lower interest rate than retail store cards, which can save you a bundle if you’re left making payments after the promo period ends.
If you’ve got a credit card that will offer you a 0% percent introductory rate on purchases,
compare its regular interest rate with that of the furniture store credit card. Choose the lower-cost option in case you cannot pay off the balance by the time the promotional 0% interest period is up.

Complete a balance transfer

If you sign up for in-store financing (a credit card) but can’t pay the balance off before the interest-free period ends, you’re at risk of getting hit with deferred interest charges.

To buy yourself more time, consider using a balance transfer credit card.

With a balance transfer, you can possibly roll over your debt from the store credit card to the new card that has an introductory interest-free period. The promotional 0% interest period typically lasts from 12 to 21 months. You usually have to pay a one-time balance transfer fee, which is often 3% of the amount of the transfer.

You’ll need good credit to qualify for the best balance transfer offers. And, keep in mind, you cannot transfer balances between credit cards issued by the same company.

Use a home equity line of credit

Another way to rustle up some extra funds is by using a home equity line of credit (HELOC). A HELOC is a revolving credit line. It’s secured by your house. You can apply for a HELOC, leave it open and draw funds from it as needed. Draw periods usually last for up to 10 years. As you pay off the principal, your credit gets replenished and you can use it again. You only pay interest on what you borrow.

The HELOC likely carries a lower interest rate than other unsecured financing options such as a credit card or personal loan. If you’re uncertain whether you can pay off the balance of in-store financing, and you fear you’ll get hit with a penalty or deferred interest charges, it can be a safer bet. You can avoid the possible penalties that come with the in-store financing offer.

Take out a personal loan

An increasing number of people have taken out personal loans to buy furniture. According to data from the Federal Reserve, the average personal interest loan rate was 10.31% in the second quarter of 2018. Financial experts generally don’t recommend this option. Although it’s lower than a typical credit card interest rate, it’s higher than your HELOC interest rate, if you have one. Your earning potential could offset the higher interest rates. Compare multiple lenders at once with our comparison tool below!

APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

Rent-to-own

Some stores offer rent-to-own programs that allow customers to take the furniture home and make installment payments. Renters can potentially own the furniture after they pay the total cost. But take note: These plans can be significantly more expensive than outright purchases. It’s technically not a loan, so there’s no disclosed interest, but the extra renting costs are usually calculated into the installments.

“By the time you own it, you may have paid triple the amount (of the regular price), so in essence, your interest rate could have been a lot higher,” said Chris Dlugozima, a financial wellness expert at GreenPath, a nonprofit debt and consumer credit counseling.

Bottom line

In-store furniture financing can be to your advantage as long as you stay within your budget when you buy and pay the debt off on time. But if you can’t be sure that you can repay the entire balance during the 0% interest rate period, think twice before you open that store credit card. At the end of the day, the expense has to come out of your cash flow. Compare your options, look at your financial situation and choose the one that comes with fewer risks and less potential cost.