Financing furniture bad idea ???

[Zombie]

I needed some furniture for my living room(very badly) so I went shopping yesterday. The grand total for 2 sofa's(full size), a chair and ottaman came to 2,000.

Jordan's furniture chain here in NH was offering 12month (zero interest) financing so I took it. It was like applying for their charge card. But now I am wondering if it was a bad idea. I was ready to pay cash but this seemed to tempting. I ended up getting 10,000 dollar limit on their charge card as well.

So was this a bad idea ? I know I took a hit on my credit due to a new account but all the miles + no interest was too tempting. Any who bad idea or Ok as long as I pay it off in time ??

BTW they charge 25% something interest after 12 months plus the interest accumulated thru the 12 months.

 

[agnitrate]

Go watch the Aqua Teen Hunger Force episode involving MC Pee Pants and he will tell you whether or not it's a good idea to buy furniture on installments. Plus, when else do you get a reason to watch Aqua Teen Hunger Force other than for the pure hilarity?

-silver

 

[Vic]

Yes. Financing and (especially) renting furniture is always a bad idea. Always pay cash (if you can) or use a major credit card.

 

[Zombie]

True but this is as good as cash since I can use my AMEX to pay that account and earn miles. What's so wrong about that?

 

[Rob9874]

If you pay it off in time, it's a great idea. Good way to build credit. But I would assume 90% of all people don't pay it off in time (myself included), and paying that kind of interest is stupid. But if you NEED furniture, and can't afford to pay cash, go for it. What else can you do?

 

[radioouman]

When the store offers 0% financing for a year, it isn't a bad idea. You need to be able to budget enough money to pay it off within that year however. I took advantage of 0% financing on my wife's engagement/wedding rings, living room furniture, and a new car. I see nothing wrong with it as long as you can pay it off on time.

 

[Zombie]

Thing is I can afford it in cash but zero% is too good to pass up with a chance to earn miles and build credit at the same time. Besides if this thread convinces me I might even pay it off before Jan.

lets see what RossMan has to say about this.

 

[Vic]

Furniture store financing is always through a finance company. Acquiring a new credit loan through a finance company will NOT "build" your credit or improve your FICO score, and will actually lower your score in the near-term.
http://www.myfico.com

edit: check this link

A new finance company loan will negatively affect "Length of Credit History", "New Credit", and "Types of Credit Used", the 3 of which make up 35% of your credit score.

 

[Jzero]

If you are getting zero interest (read: free money) there is really no reason NOT to take it. Instead of paying $2000 now, you can pay $200/month for the next 10 months, all the while you can have the cash invested and working for you.

Reasons not to take it?
1) You might forget to pay it off in time.
2) This will appear on your credit report which could work against you in other loans for awhile.

 

[Armitage]

I use these kind of deals all the time. Just make sure you pay it off EARLY, not just on time, and make monthly payment early as well. And keep an eye on your statements.

Many/most of these deals "defer" the accumulated interest, and then refund that amount if you pay off in the required time frame. But there are alot of gotchas that they'll use to charge you that full interest. The most obvious is not paying it off in time, so I like to pay it off 2 months early, so I'm sure to have at least one statement showing a 0 balance before the due date. The other is that if you are ever late on a payment or pay less then the minimum, they can drop the deal, so I set up my automatic bill payment (which is already conservative on "pay-by" dates) to pay it a week before it's due.

 

[Zombie]

I have the auto-payment all setup and waiting to get started . Should be done in 6-8 months.

 

[vi edit]

Originally posted by: Jzero
If you are getting zero interest (read: free money) there is really no reason NOT to take it. Instead of paying $2000 now, you can pay $200/month for the next 10 months, all the while you can have the cash invested and working for you.

Reasons not to take it?
1) You might forget to pay it off in time.
2) This will appear on your credit report which could work against you in other loans for awhile.

That pretty much mirrors my thoughts.

I guess I see furniture as actually a *better* thing to finance than say a car or a tv. If you finance bedroom furniture, that's something that *most* people will keep for quite a long time and doesn't ever really require any sort of maintance or upkeep on it. Unlike a car you may trade in a few years down the road or a TV that could possibly fail in three years that you paid $500-$1500 for.

So long as you pay it off in time, it's free money for the most part.

 

[Parrotheader]

Originally posted by: Zombie
Thing is I can afford it in cash but zero% is too good to pass up with a chance to earn miles and build credit at the same time. Besides if this thread convinces me I might even pay it off before Jan.

lets see what RossMan has to say about this.

We just bought a bedroom suit, a new kingsize mattress and all the linens for a kingsize bed so I feel your pain to the tune of another $5,000 on top of that $2,000. Pretty much everybody these days will find a way to finance everything. Personally, my wife and I have always taken the approach of trying to save up in advance and pay off things in cash whenever possible. Financing is a good idea in some instances if done in moderation, but when you start do it too much you get a false sense of your overall financial situation until the debt starts to hit and then you're in no shape to handle it. That's the reason they offer it because they know most people won't pay the whole thing off as soon as the year is up. If you do, then it works to your benefit, but you have to be disciplined about it.

We paid for everything on our credit card so we could get our mileage points and will pay the whole thing off next month with the money we'd saved for it. Granted, that's about $7,500 that won't be earning interest this year but we won't be lulled into thinking we still have that money. Plus the sudden hit to our savings is always a good shock motivator for us to continue efforts to work on building up the savings to where it previously was. Different strokes for different folks.

 

[djheater]

I took the BestBuy 24 months 0% interest for a new stove and dishwasher.

As has been said, it's free money. Why would I put myself in the hole when there's no reason to believe I won't be able to pay it off in time?

I wish I could set up scheduled payments through bestbuy but I don't see that option on the website. Going to be really annoying to have to click through every month for the next two years.

 

[MaxDepth]

This is a good idea. Even if you pay $500 now and $125 for 12 months. Or $150 for 10 months. If your credit is non-existent (as mine was when I finished college) or low or somewhat damaged, this shows that you can make payments and do so in a timely basis. If you show that you paid in full before the time period, that also works in your favor.

What makes money this way: the company gets all their money now, through the financier. The financier hopes that you bought more than enough to not make payments (or untimely ones) so that the interest is brought in full on the unpaid amount, plus whatever they charge while you try to pay of the principal and interest.

 

[dman]

in S.FL CityFurniture offers 0% but if you don't pay it off in the 12mo's they accrue interest from the very beginning--in the TOS.

Rooms to Go offers 18Mo's and sometimes longer terms. There interest doesn't accrue, you pay interest only on the balance at the end of the term (at least that's how it used to work).

We had the money to pay outright, but, as said above, nice to keep it in the bank and earn .00425%

Will kill the cards eventually.

 

[VictorLazlo]

Please realise that you absolutely HAVE TO pay it off in 12 months. Since you were prepared to pay cash, you probably made a good choice. Some people don't notice that when the interest kicks in after 12 months, you also get back all the interest that accrued during the first 12 months.

I had a friend who said: "Oh look, no interest for 12 months, and the monthy payment is only $40!" Wrong. You get one or the other, but not both. 12 months is the deadline, pay it off by then or die. You seem to have your sh1t under control though, so this little rant is for everyone else.

 

[Vic]

A better way to state these deals is that they have "refundable" interest charges if paid off in the first XX months (12 in this case). The interest actual never stops accruing, they just forgive it if the loan is paid off by a certain time.
If you look at the Federal Truth-in-Lending Disclosure, there is a line that says (in some form or another):

If you pay off early, you ( ) may ( ) will not be entitled to a refund of part of the finance charge.

"Finance charge" always includes the interest. On the loan in question, the box next to "may" will be checked.

 

[Thegonagle]

Pay it off fully within 12 months and then close the account. It's not a big hit anyway, because your balance and high credit on that account is only 20% of the limit.

 

[AgaBoogaBoo]

Just pay it off a little sooner than what you had in terms of time and you'll be fine.

 

[flot]

Make 100% sure you pay off 100% of it at least a month and a half in advance, and you're fine.

Incidentally, for those that graduate from college and get a nice paying salaried job, this is a GREAT deal.

Here's how it worked for me:

Beginning of JUNE: Graduated college, moved to new town, got an apartment and a good job. (let's say I made $40k a year) Went to a chain furniture store as soon as I moved, and bought $3000 of furniture. (living room set+bedroom set)

1 year financing, no interest no payments if paid off in full.

Now, all my taxes, etc, that the company is taking out are based on a $40,000 income -- HOWEVER -- I only worked 6 months of that year. So they are taking out $40,000 worth of tax from each paycheck - but when the tax man comes, I only earned $20,000 during that fiscal year.

Net result? Nice tax refund - paid off the furniture - got 6 months of use out of a bunch of nice furniture I could not have otherwise afforded, and never even knew the difference from a paycheck standpoint. My paycheck for Jan was the same as it was the previous Dec, so my standard of living etc did not change, but in essance - I was using my "overpaid taxes" to buy me furniture during that first six months of employment.