Is it a good idea to finance furniture or appliances with a store credit card?

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When you’re considering a major furniture purchase, a store credit card doesn’t seem like a bad idea, especially if you don’t need to pay interest or make payments for a year or two.

But are the offers as enticing as they seem?

Storing Credit Cards 101

As a general rule, experts advise against store credit cards for several reasons. Here’s why:

Interest rates are high: In 2021, credit cards from the nation’s largest retailers had an average APR of more than 23%, compared to around 19% for non-store cards. If you can’t pay off your balance right away, it’s a painful price to pay.

Credit limits are low: While this may prevent you from buying more than you can comfortably afford, the fact remains that you’ll likely have (or possibly earn) a much higher credit limit on a non-store card. And if you charge a few thousand dollars for furniture to a card that only has a limit of a few thousand dollars, that could have a negative effect on your credit utilization rate (how much of your available line of credit you have used). This has a big impact on your credit score.

The benefits of the card are slim: Important benefits such as buyer protection, extended warranties and grace periods are not common with store credit cards. It’s true: without a grace period, you can be charged interest immediately on your purchase with a store credit card.

Credit inquiries can lower your credit score: As with all credit cards, the issuer will check your credit report when you apply for a store card. This rigorous check can result in a minor drop in your credit score. For some, like those in the bubble of qualifying for a mortgage, this can cause headaches, especially if they could have made the purchase another way.

Additional temptation: Stores often send discounts or promotions to cardholders to generate additional business, but if you find yourself charging for things you don’t actually need because it’s a “good deal”, fine. .. it’s really not a bargain at all.

What about using store credit cards for furniture, appliances, or other big purchases?

Our general caveats still apply, but let’s say you have your eye on a big purchase such as assorted stainless steel appliances. Or maybe you need a bigger sofa to fill that massive new living room. The retailer offers no interest for a year or two if you use their credit card. You may not even need to make any payments during this time. Seems like a no-brainer, right?

Not exactly. One of the reasons the store credit card tempts you is likely to be a low or no interest offer for a long time, say a year or two after your purchase. What you might not know is that if you don’t pay for the purchase in full during that time, that interest doesn’t go anywhere.

You will have to pay every penny of this interest retroactively once the promotional period expires.

The same often happens if you miss a penny of your minimum payment (if a payment is required) during that promotional period; you could immediately be hit with retroactive interest.

Alternatives for storing credit cards

There are a few better ways to make that big purchase that don’t involve store credit cards: pay cash, buy used, or use a regular credit card.

Alternative n°1: Pay cash

We would be remiss if we did not mention this obvious method. Save for your purchase and pay for it in full without using credit. You won’t be responsible for any interest and you’ll have a lot more leeway to negotiate. After all, the retailer often prefers to take a small hit on the purchase price in order to get your money out right away and avoid paying credit card fees.

It’s also worth remembering that experts advise against financing anything that depreciates in value, and furniture or appliances are a perfect example. (You might be thinking about how people finance cars all the time, which depreciate the moment they’re driven off the lot. That’s right, and in an ideal world, you’d also be paying cash for your car. But also consider how much lower APRs are for car loans. the national average for car loans is only 3.94% if you have good credit.)

Alternative n°2: Buy used

If you can overcome the desire for shiny, new things, buying used furniture can save you thousands of dollars. Ideally, you’ll be able to get it from a reputable source to allay concerns about cleanliness. Otherwise, resale groups Facebook and Craigslist can offer a multitude of options.

Even if you dread buying second-hand upholstered pieces, you can find great deals on tables, shelves, dressers, and appliances. (In general, you’ll probably want to avoid used mattresses for obvious health issues, including bed bugs.)

To buy used furniture without getting burned, keep a few things in mind:

  • First, Inspect it carefully before you shell out your money: stains, tears, missing parts or unpleasant odors are all obvious reasons to pass.
  • Second, make sure you don’t buy anything that has been recalled, such as a crib with flip-up sides.
  • The third, don’t forget the hidden costs. If you need to rent a truck to haul the furniture or invest money in paint or new fabrics, be sure to factor those costs in and compare the total to what you might spend on a new item.

Alternative #3: Use a regular credit card

If you can’t afford cash and don’t want to buy used, a regular credit card is probably a better bet than a store credit card.

Why? First, you generally won’t have to worry about retroactive interest when using a regular credit card (although you should always read the fine print to double-check). Second, unless your credit is very poor, you’re probably looking at a much more reasonable interest rate — the Average APR is 16.17% but could be considerably lower if you have good credit. Finally, remember that regular credit cards often come with fringe benefits like extended warranties, purchase protection, travel insurance, and even identity theft resolution.

If you go this route, be sure to consider a few strategies:

Get a credit card with an introductory rate of 0% APR

If you have good credit, you may be able to get a credit card with an introductory APR of 0%. This way you get the interest-free period that you would have gotten with the store credit card. Still, you won’t face a scary bill of retroactive interest if you haven’t paid the balance in full after the promotional period expires (although we still recommend paying the balance in full during the introductory period) .

Every offer is different, but it’s more common for this introductory period to last 12-15 months.

Use a credit card with big rewards

We recommend going the rewards card route only if you can pay off your balance quickly, as APRs tend to be a bit higher on these cards. But it is worth mentioning because there are many fantastic reward cards.

Also: Best Marriott Credit Cards: Enjoy Extra Travel Perks

A big furniture or appliance purchase can trigger a nice cash back or bonus travel miles, and the average 25-day grace period gives you a few extra weeks to pay off the entire purchase before you do not owe interest on it.

Is it still okay to use store credit cards?

There’s one case when it might make sense to make a big purchase with a store credit card: when the retailer is offering a deep one-time discount just for signing up for their card.

Say you bought a piece of furniture for $4,000 and the store offers a 10% discount on your first purchase when you sign up for their credit card. You would save $400. The trick is to be disciplined: pay off the rest of the balance immediately – or at least during the promotional period if there’s an interest-free offer – then cut the card when you’re done.

Beyond that, if you’re absolutely determined to make your big purchase, don’t have the money saved up to avoid using credit, and aren’t able to qualify for a better credit card, in-store financing may be your last resort.

Using a store credit card won’t break the bank if you follow one rule: Pay off the balance immediately, or at least before the promotional interest rate expires.

A store card can also make sense if you are very financially disciplined and shop at the store very, very often.

If you can’t qualify for other cards, there’s also another important way a store credit card can benefit you: it can help you build your credit. Store credit cards are easier to get – often because the retailer can take back your purchases as collateral if you’re late paying.

But to increase your score, you must use the card responsibly: you must only use a fraction of the available credit limit, and you must reliably pay off the balance each billing period before you incur charges. interests.

[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]

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