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Furniture Loan: How to finance new furniture
Want to upgrade your home decor but don't have the money up front? Here's how you can pay for it.
Furnishing a new home or apartment can be one of the most expensive parts of moving. Even replacing your sofa or expanding your closet space may cost more than you have saved up. Fortunately, there are several different ways you can finance new furniture. Compare your options below.
How does a furnishing loan work?
Certain lenders provide exclusive furnishing loans that can help you finance the purchase of new furniture. Furnishing loans are essentially a niche type of personal loan that may only be used to finance furniture. They differ from regular personal loans as such loans often have more lenient income requirements, do not require collateral and offer competitive interest rates.
Compare personal loans you can use to finance new furniture
Types of furnishing loans
Furnishing loans often come in 3 different forms: short-term loans, loans with re-instalment plans and unsecured personal loans.
- Short-term furnishing loans should only be consulted if you urgently need new furniture. This is due to the higher interest rates and more stringent borrowing criteria that come with short-term loans.
- Furnishing loans with re-instalment plans come with low interest rates and flexible repayment schemes. This is one of the best ways to finance your furniture responsibly.
- Unsecured furniture loans allow you to borrow without the need to secure an asset. Should you default on the loan, your assets cannot be seized.
You should choose your furnishing loan type by considering your desired borrowing amount, loan term and the fees associated with each loan type.
Furnishing loans versus renovation loans
Unlike renovation loans that only cover construction and material costs, a furnishing loan can provide up to five times of your monthly income to specifically buy new appliances and furnishings for your home or your business.
Different furnishing loan providers offer varying loan terms, borrowing amounts and interest rates. Since purchasing new furniture is a large financial commitment, you should always shop around before deciding on a furnishing loan provider. Some popular furnishing loan lenders to consider in Singapore are Horison Credit, Katong Credit and Credit 21 Pte Ltd.
How much should you borrow with a furnishing loan?
The amount you borrow with your furnishing loan depends on the type and quality of furniture you’re looking for. While you can get a dining room set for as little as $129 at Ikea and similar stores, you can easily spend 20 times that amount at a high-end retailer. Below we show the average price for various furniture, according to estimates from ValueChampion.
Other financing methods to consider
There are several different ways to finance new furniture besides taking out a furnishing loan. This includes in-store financing, credit cards, home equity loans, and rent-to-own options. Depending on what you’re buying and your personal financial situation, not all options might be right for you.
1. In-store financing
Many furniture stores offer in-store financing. It’s easy to sign up for, and many offer loans with a promotional introductory rate of 0% interest rate for the first 6 to 12 months. If you think you can pay off your loan before that period is up, this option could be a great deal for you.
But many of these deals come with a deferred interest clause. This means that if you’re unable to pay back the furnishing loan by the end of the promotional period, all of the interest you would have had to pay gets added to your loan. Since interest on these loans is typically around 20% to 30%, it can add up quickly.
2. Personal loans
Personal loans are a popular option for people who don’t want to use in-store financing to buy furniture. To get the best deal on a personal loan, you should have good credit and a low debt-to-income ratio. Personal loans typically range from S$2,000 to S$50,000, though you can find lenders who offer as little as S$1,000 and as much as S$100,000.
Interest rates tend to run from 8% to 30% and terms often span between three and five years. While you might not be able to take advantage of the 0% interest rate deal with a personal loan, it’s less risky. And if you go with a lender that doesn’t charge an early settlement penalty, you can save on interest by paying it back early.
3. Home equity loans
Home equity loans involve borrowing against the amount of equity in your home. Since it’s secured with your home as collateral, lenders are likely to offer more favourable rates and terms than on an unsecured personal loan. It could be a more affordable option for borrowers who don’t have stellar credit.
If you just bought a new home, it’s likely you haven’t built enough equity to borrow from, however. Also, you run the risk of losing your home if you can’t pay back the loan on time.
4. Credit cards
Credit cards could be useful in two situations: When you’re making small purchases and when you want to take advantage of 0% financing. Using a credit card for small purchases that you can repay quickly, or is a small percentage of your credit limit is convenient and might not cost you much at all.
For larger purchases, consider signing up for a new card with a 0% promotional period and without a deferred interest clause. That way you won’t run the risk of paying extra interest if you miss a payment or can’t pay it off before the promotional period is up.
Getting a loan with a 0% promotional period might seem like a logical choice, but there are some major drawbacks to keep in mind.
- Missed payments
If you miss a payment on your in-store loan, the deferred interest clause could kick in early. Paying high interest on a loan that you’re already struggling to pay off could send you into a cycle of debt.
- Consumer finance loans
Then there’s the fact that some in-store financing deals don’t require a credit check. If you have a term loan, it shows up on your credit report as a consumer finance loan, which is a type of credit designed for poor-credit borrowers. Lenders who see this on your credit report might not be as willing to offer you a good deal on a loan in the future.
- Revolving accounts
Some furniture stores might report your loan as a revolving account. With a revolving account, you have access to a certain amount of funds — or credit limit. When you buy furniture on a revolving account, typically you use your entire credit limit.
This can hurt your credit score by damaging your credit utilisation ratio. The less you use of your credit limit, the more favourably it’ll reflect on your credit score.
Bottom line: furnishing loans versus other financing options
Ultimately, buying new furniture is a huge commitment which you should finance responsibly. It’s therefore important to consider the best financing option based on your personal financial situation.
In general, in-store financing is easier than taking out a furnishing loan and could be a good deal if you’re able to make repayments on time. But a furnishing loan comes with less risk and could end saving you money if you have strong credit. Alternatively, you may want a range of other personal loans to finance your new furniture.
Frequently asked questions about furnishing loans
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