Furnishing a house, replacing whitegoods after a move, or kitting out a rental all tend to happen at once and at exactly the moment the money has gone somewhere else. There are three common ways people fund it, and they are genuinely different from each other. Worth understanding which is which before you sign at the counter.
The three options
A personal loan. A fixed amount, a fixed term and fixed repayments, arranged before you shop. It ends on a known date, and because you arrive with funds you are buying as a cash customer, which is sometimes worth a discussion at the counter in itself.
Retailer interest free. An arrangement offered at the point of sale, often described as interest free for a set period. The furniture is yours immediately and the promotional period is real, but the structure behind it is usually a continuing credit account.
Buy now pay later. Smaller amounts split across instalments, with fees rather than interest, and nothing to sign in the traditional sense.
What the interest free fine print usually says
This is the part worth reading properly rather than trusting.
Most retailer interest free offers are a continuing credit account rather than a fixed loan. That typically means a monthly account fee that applies whether or not you are in the interest free period, an establishment fee, and an ongoing rate that applies to anything still owing when the promotional period ends.
The critical detail is what happens at the end of the period. On many accounts, interest then applies to the remaining balance at the standard rate, which is usually well above a personal loan rate. Clear it inside the period and the offer does what it says. Miss by a month and the maths changes sharply.
Two more things people miss. The account is credit, so it appears on your credit file and its limit counts against you when you next apply for something, including a home loan. And the limit usually stays open afterwards, which is convenient or dangerous depending on the person.
None of that makes interest free a bad deal. Used deliberately, with a plan to clear it inside the period, it can be the cheapest option available. The problem is that it is designed around the assumption that a good share of people will not.
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Where buy now pay later fits
Fine for small amounts you will clear quickly. The difficulties start when several arrangements run at once, which is common and easy to lose track of.
Lenders absolutely count them. Multiple active buy now pay later arrangements affect what you can borrow, and they show in your bank statements whether you declare them or not. If they have built up, our guide to debt consolidation covers rolling them into one structured repayment.
When a personal loan suits better
The amount is larger. A whole-house furnish or a kitchen full of appliances is usually beyond what a store account handles comfortably.
You are buying from several places. One loan covers the lot, rather than three accounts with three sets of fees and three end dates.
You want it to end. A fixed term finishes. A continuing credit account does not, unless you make it.
You are not confident of clearing it inside the promotional period. If there is real doubt, a personal loan at an ordinary rate usually beats an interest free deal that reverts.
Furniture finance is unsecured, since furniture is not useful security. If you have a vehicle or another asset, a secured loan is generally priced better and is worth asking about. Our personal loans page covers both.
What lenders assess
- Income and employment, and whether the repayment fits alongside existing commitments
- Your credit file, including recent applications and any store accounts already open
- Existing limits, which count whether used or not
- Compare any offer on its comparison rate, because on this kind of credit the fees matter more than the headline rate
Where a broker fits
The useful question is not which lender, it is whether you should be borrowing at all for this, and if so in what form. Sometimes the store offer is genuinely the cheapest route and we will say so. Our personal loans page sets out what we arrange, Australia-wide.
This article is general information only and is not financial advice. It does not take account of your objectives, financial situation or needs. Retailer credit terms vary; read the specific offer before signing.
Damo Treadgold is the director of Treadgold Finance, an FBAA-accredited finance broker on the Sunshine Coast, arranging personal, car, boat and equipment finance Australia-wide.
Frequently Asked Questions
Can I get a personal loan for furniture and appliances?
Yes. Furniture finance is unsecured, since furniture is not useful security. If you have a vehicle or another asset, a secured loan is generally priced better and worth asking about.
Is store interest free cheaper than a personal loan?
It can be, if you clear the balance inside the promotional period. Most offers are continuing credit accounts with monthly account fees and an ongoing rate that applies to anything still owing when the period ends, usually well above a personal loan rate.
Does store finance affect my credit file?
Yes. It is credit, so it appears on your file and the limit counts against you when you next apply for something, including a home loan. The limit usually remains open after the balance is cleared.
Does buy now pay later affect borrowing?
Yes. Lenders count active arrangements and they show in your bank statements whether declared or not. Several running at once affects what you can borrow.
When is a personal loan the better choice?
For larger amounts, when buying from several retailers, when you want a fixed end date, or when you are not confident of clearing an interest free balance inside the promotional period.
What should I compare offers on?
The comparison rate rather than the headline rate, because on this kind of credit the fees often matter more than the interest rate itself.
