Buying new furniture can be expensive. Of course, this isn’t helped by the fact that it often coincides with moving into a new home, meaning we’re still budgeting for rent or mortgage payments, paying for moving costs and worrying about a whole host of other expensive bills. As a result, many people find that once they’ve moved into their dream home, they haven’t left themselves with much cash to furnish it.
No one wants to spend a year sitting on a sofa made out of cardboard boxes though, and luckily there are plenty of ways to bring purchases such as furniture forward.
In this article, we’ll cover some of the most common options for furniture finance, and help you to understand the pros and cons of each one.
If you already know what you want though, you can skip ahead - or, if you’re looking for a flexible personal loan of £1,500-7,500, you can take a look at our loan calculator or make an application at www.koyoloans.com. Representative APR 27%.
Is it a good idea to finance furniture?
Before we get into the detail, it’s worth understanding when it’s a good idea to finance furniture in the first place. Borrowing money to fund any purchase - whether that’s a dining table, a family car or to pay for home improvements - will almost always carry a cost. These can take the form of:
Hidden mark-ups when making a purchase
It’s almost always cheaper to use savings, and so if you’re lucky enough to have enough in your savings account to cover the purchase, that’s almost certainly the best way to do it.
However, many of us aren’t in that position. If not, and you need new furniture, it’s worth considering why. Consider two examples:
You’ve moved into a new house and don’t have a sofa - you want to buy a reasonably priced one, but wouldn’t be able to afford it right away. However, you could comfortably afford the monthly repayments if you took out financing
You don’t like your current sofa and have your eye on an expensive new one. You can’t afford it, but could just about stretch to the monthly payments if you took out financing
Most financial experts would tell you that option 2 is a bad idea. Borrowing money isn’t a way to make luxury purchases you can’t afford - rather, it should be a way to bring forward important purchases, and allow you to spread out lumpy costs.
Option 1 is more nuanced, and you can make a stronger case that this borrower has a sensible reason to take on debt. Having usable furniture is pretty important, and he or she would be able to comfortably afford the payments over the full length.
With this in mind, it’s worth asking yourself three questions to help decide whether it’s worth taking on debt:
Do I really need this item?
Could I pay for it with cash, or delay the purchase so that I can save up?
Am I sure I can comfortably make the repayments?
These questions will help to guide you if you’re wondering whether financing furniture is a good idea.
How do you finance furniture for a new home?
Buying a new home is a tricky time financially. It’s likely that you’ll have a new mortgage to worry about, and you’ll also be shelling out for lawyers and stamp duty.
With that in mind, it’s not surprising that many new homeowners look at options to finance new furniture in instalments rather than purchasing outright, and we’ve taken a look at what’s available below.
However, the first thing you’ll need to do is work out what furniture you need! Once you’ve done that, you’ll be able to create a budget and look at some of the financing options available to you.
What are the different available options?
There are lots of different ways to finance furniture. As explained above, cash or savings will almost always be the best option, but if that’s not possible, read on for a guide to four different financing choices.
To get started though, here’s a visual guide to how most financing agreements work:
Paying for furniture is a common reason for a personal loan. And personal loans are pretty simple: you borrow an agreed amount, use that amount to make the purchase you want, and then make fixed monthly repayments until the balance is paid off. Koyo is an example of a personal loan provider, and you can use a Koyo loan to pay for furniture (representative APR 27%).
That’s all there is to it - it’s a simple, flexible and efficient way to fund a purchase, and in some cases, it can be relatively inexpensive. As with all forms of financing we’ll cover here though, the best deals tend to be reserved for those with the best credit histories - if you have a “fair” or “bad” credit score, you’ll still be able to access finance, but will find you’ll face higher rates and will be looking at lower loan amounts.
In-store finance options
Many large retailers (think IKEA, Wayfair, Made, DFS) offer their own store credit agreements, meaning that you can take home the item of furniture today, but will pay it off over an agreed period.
In some cases, there is an interest rate payable, but you might even find that there’s an interest-free option (often called “interest-free credit).
If you’re able to access a 0% deal, this can be extremely competitive. There are a few potential drawbacks to be aware of though:
In many cases, you’ll have to pay a deposit, usually around 10-20% of the total amount.
Unlike with a credit card (more on that later), you won’t have payment flexibility - you’ll have a schedule of repayments that you must meet.
As with other forms of credit, it’s not available to everyone - and each store will have its own criteria.
0% credit card
If you’re able to access a 0% credit card with a big enough limit, you can use that to purchase furniture and avoid paying interest (so long as you stay within that limit). However, you’ll need to be sure to pay off the balance quickly, as most credit cards move to a much higher rate after a short time.
As with all forms of borrowing, you’ll need a good credit rating to access the best deals or a large amount of credit, and it’s worth shopping around. Most importantly though, this is only an option to consider if you’re disciplined enough to pay off the balance quickly - if not, your interest payable will rapidly increase.
There is one side benefit though: buying furniture using a credit card gives you some extra protection if things go wrong, known as Section 75.
One last option - not strictly “financing” furniture - is to rent what you need, rather than purchasing it. There are plenty of companies out there who will lease you furniture, although of course, this is only useful if you know you’ll need the furniture for a fixed period.
It can be a good way to furnish a home if you know you’ll be renting for a year for example, but not only do costs rack up if you keep it for a longer period, you’ll also have to consider what happens if the furniture gets damaged.
Does financing furniture hurt your credit score?
This is a really interesting question and one which we’ve answered in more detail in our article on whether a personal loan affects your credit score.
Here’s the TL;DR though: in general, taking out any form of credit will have a negative impact on your credit score in the short term, but as you pay the credit off, your score will increase.
The short term effect is because taking out credit makes additional loans less affordable. The long term, positive effect is because most lenders like to see a track record of paying off debt on time.
So while financing furniture might lead to a short term drop in your credit score, that alone shouldn’t put you off, as you’ll most likely be able to increase your score by then paying it off.
Can you get furniture finance with a bad credit score?
We’ve mentioned above that borrowers with a low credit score can usually still access credit, but won’t be eligible for the best deals.
If you have a low credit score, it’s important to shop around - but you should be wary of racking up too many applications, which can hurt your score further. The way around this is to look for credit providers who carry out what’s called a “soft” search, which doesn’t leave a footprint.
If you’re finding that a low credit score is holding you back, it may also be worth looking at a lender which uses Open Banking, such as Koyo. These lenders use Open Banking technology to securely view your bank account data, allowing them to see how affordable a given loan is for you.
As a result, they’re able to consider loans based on actual affordability, rather than just what a credit bureau says about you.
What credit score do I need to finance furniture?
There’s no minimum score you need, since every provider will have different criteria, and even the 3 UK credit bureaus use different scales. However, if you have a “bad” or “very bad” credit score, it’s likely that you will have to work much harder to access credit, and will have to pay a significant premium.
In some cases, it’s possible that you won’t be able to access any appropriate forms of credit, and if that’s the case, it’s worth considering how you might be able to improve your credit score.
And as we’ve mentioned above, Open Banking lenders such as Koyo don’t just consider your credit score, since they focus on affordability - this can be a suitable option if your credit score is holding you back.
Hopefully, this article has given you a good sense of what the available options are, and which ones might be most suitable for you.
If there’s anything we haven’t covered, please let us know in the comments section below. And if you’re ready to get started, you can take a look at our loan calculator or make an application at www.koyoloans.com. Representative APR 27%.