Monthly Payment Trouble

Beware of high financing costs baked into the payments.  Always know the cost of the item and the cost of the financing. Most of the time you are better off paying cash. Furniture stores do this as do appliance stores. Make sure the price is good to start with before agreeing to anything.

0% financing is a good deal only if the price is good. If the price is inflated then what’s the point of the “free” financing?

Renting furniture is usually a bad idea. There are rent to own stores that will let you rent furniture or rent to own such furniture. Here is why.

Example: Greta Gullible Buys Furniture

Greta recently graduated from college. Now she has a new apartment. The problem is the new place is unfurnished unlike her college place. She would like to have nice furniture instead of used garage sale stuff. A friend suggests she could look into furniture rental. She goes to visit the store and the salesman convinces her to rent to own a living room set. The sets costs $3000.

  • Price: $3000
  • Financing: Unknown
  • Term: 36 months
  • The salesman quotes her a price of only $111 per month. This does not seem like a bad deal for Greta and she agrees.

The problem here is that she didn’t read the fine print or understand financing. The effective interest rate is 19.8%. That is high as in credit card high but the rate is not stated. So over a term of 36 months she is paying $4000 which means she is paying $1002 in interest.

On top of that the furniture was not a good deal. She could have gotten similar but more stylish furniture at Ikea for $2200 all in. That is if she waited six months to get cash from her bonus check or saved the money and bought used furniture as an interim fix. The used furniture could later be sold to recoup the cost once new furniture was purchased.

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