Personal loan vs. store financing if you have limited credit


Dear Personal Loan Adviser,
We’re looking to buy some new furniture to go with our new house. The credit available on our credit cards won’t be enough, and we don’t really want to increase those credit lines.We’re trying to decide between a personal loan and a no-interest loan offered by some furniture stores — no interest until 2018, I saw in one recent ad.
— Daisy Davenport

Thomas Barwick/DigitalVision/Getty Images

Dear Daisy,
The no-interest loans can work, but you have to go into those agreements fully understanding what happens if you don’t meet the terms.One misstep and you wind up paying interest from the date of purchase, and typically the interest rate is pretty steep. I did a cursory review of a couple of these offers and saw annual percentage rates (APR) as high as 29.99%.The buyer’s mindset may be, “I don’t care if it’s a high interest rate, because I’m going to avoid paying any interest.” That’s great if you can stick to the terms.Manage your credit betterYour comment that you don’t want to ask your credit card providers for an increase to your credit lines makes me think you’re worried about managing credit, and by financing the furniture separately, you can manage your finances better.A personal loan is an amortized loan, meaning the monthly payment covers the monthly interest expense as well as the reduction in the outstanding loan balance each month. Everything’s paid off at the end of the loan. That’s not true with credit cards, and not true for most no-interest furniture loans.RATE SEARCH: Apply for a personal loan today at rates and termsThe online personal loan providers will let you shop rates and terms without it negatively impacting your credit score. Take them for a spin to see what the interest rate will be for your furniture purchases.Keep in mind everything doesn’t have to be new, just because it’s a new house. I’ve gotten some of my favorite furniture from consignment shops or as family heirlooms.
Ask the adviser
To ask a question of Dr. Don, go to the “Ask the Experts” page and select one of these topics: “Personal Loans,” “Financing a home,” “Saving & Investing,” “Senior Living” or “Money.” Read more Dr. Don columns for additional personal finance advice.
Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.
Related Links:

How rising interest rates could impact peer-to-peer lending

Personal loan rates stay put as Fed keeps rate the same

Top 7 signs of a personal loan scam

Personal Loans

Related Articles:

Obtain a loan to pay debts

Unsecured home fix-up loans

Redefining creditworthy

Comments are closed, but trackbacks and pingbacks are open.