More on Furniture Financing, Installments, Sales vs Leasing
What financial services and products are most popular among Americans? This guide will help get acquainted with the best financial products.
We all want to have beautiful, comfortable and durable furniture in our home, which will not only give us comfort but also become a real decoration of our home.
But often this dream becomes impossible due to the fact that a person rarely can pay for the model he or she likes. Many companies offer a simple way out of this seemingly insoluble situation. And this is furniture financing.
Pros and cons of furniture financing
Benefits of buying financing on credit:
- Possibility to purchase furniture without having enough money with you (no down payment);
- Opportunity to spend available funds for higher priority needs;
- Ability to afford more (purchase all the necessary furniture or more expensive and high-quality items);
- No need to save money and wait;
- Various maturities at the client’s choice;
- You can repay a loan early at any time without penalties.
But there are also disadvantages, as well as “pitfalls” that must be taken into account in order not to get into a mess. These include:
- Additional expenses and commissions. It is important to take into account that most likely you will have to pay extra for banking services every month during the loan repayment or you will receive other charges. To avoid this, you need to choose the right bank, as well as read the agreement;
- Interest. This is the main disadvantage of any loan. Payout interest may differ depending on the selected bank, as well as the purchase price.
So, a furniture loan is a great option for a quick and rather profitable purchase.
When should you take a furniture loan?
Today many people need to save up for a new piece of furniture for several months, or even years – if the purchase is large.
But how can you wait a whole year when the old sofa broke and you urgently need to buy a new one? In this case, you can contact lending services. If you work officially, have a steady income, then there should be no problems with approval.
Of course, the situation with the sofa is somewhat exaggerated, but still, you shouldn’t wait long and postpone the purchase when you can buy the item right away. Yes, there is a certain overpayment.
So, should I take a furniture loan? If you do not want to save money for a long time, then yes, you can use this service. Thanks to this, you can immediately purchase and start using new furniture.
Electronics and home appliances are not cheap. But you no longer need to spend all your savings on it at once. More and more people are choosing to buy goods in installments. We will find out the advantages and disadvantages of the system.
In order to understand the real difference between an installment and a loan, you need to know definitions of the both services.
A loan is targeted financing for the purchase of a product using borrowed funds at a certain interest and for a specified period. That is, the bank pays for your purchase in full, and you return the money taking into account the interest rate.
The concept of an installment is somewhat different – it is a purchase method in which the store provides the buyer with the opportunity to pay for the goods in equal parts, without additional payments for several months. That is, the store allows the buyer to repay the debt for the goods in small parts in order to increase the demand for its goods.
- Use now, pay later. This is very convenient if the equipment broke suddenly. Not everyone can find $1000 at once, but it is also impossible to live without a refrigerator or TV. Installment comes to the rescue. You are using the product, and you do not need to pay a large sum at once;
- No overpayment. This criterion is relevant if you are dealing with fair installments. In this case, this is not a bank loan; you will not be imposed hidden interest and commissions. You can calculate the monthly payment independently, for this you need to divide the purchase amount by the number of months in installments. Everything is clear and transparent;
- Application directly in the store. To make such a purchase, you need to make a minimum of effort. Even if you do not have money, you will not need to get a credit card or provide documents on income to the bank. You just come to the store to choose equipment, and the manager will deal with paperwork;
- The price will remain unchanged. Many people doubt whether to take an installment loan because they are afraid of large overpayment. But, in fact, you can save a lot on such a purchase. As long as you save money, the cost of household appliances will grow decently. But if you bought a product in installments, you essentially freeze the price;
- Choose the best. When you buy something in installments, you are not so limited on the budget and can afford to buy a quality item that costs $1000 or more. The difference in price will increase the monthly payment for a year in installments by less than $100, and the equipment will work longer and please you!
- You may be missing out on promotions for cash purchases. Stores sometimes offer a cash discount program. As a rule, such promotions do not apply to installments. The loss of profits is usually not very impressive, but the fact remains;
- Payment for application. When you apply for a loan at a bank, the remuneration for the work of employees is already included in the impressive interest. If the installment plan is fair, then there are no hidden interests or overpayments. However, you may be charged a small amount for registration.
As you can see, installments have much more advantages. But all of them only work if you find a truly honest store with transparent conditions.
Sales vs finance leasing
When you buy commercial equipment, you often face a dilemma: buy it in installments or choose to lease. Practice shows that it is wiser to use the offer of financial institutions and conclude a lease agreement. But why is leasing more profitable?
Today the word “leasing” is very popular. However, most transport workers have a vague idea of this type of financial relationship. And the very concept of “leasing” for many is associated with a burden for a long time. Someone even draws a parallel with mortgage lending, although these are completely different products. Meanwhile, financial leasing is gaining impressive momentum in the USA: the annual market growth is about 40%.
Let’s focus on the advantages of leasing. In short, unlike a purchase, it allows you to free up certain funds for other needs of the enterprise that are not associated with the purchase of commercial equipment. The freed up financial resources can be used for the overhaul of industrial buildings, structures, and for the construction of new workshops, etc.
With leasing, a transport company or a single road carrier really saves time and effort on the purchase, registration and maintenance of the purchased vehicles. The professional solution of these tasks is willingly undertaken by financiers, who can choose the option that is most acceptable for a particular transport company based on their own experience and the wishes of the customer. The management of the lessee, meanwhile, can calmly concentrate on developing its own business. By concluding a lease agreement, the road carrier confidently manages its budget and fixes the upcoming costs for the fleet for several years in advance. A businessman does not have to immediately divert impressive funds from circulation for the purchase of vehicles.
The attractive side of leasing is tangible savings. At the end of the lease term, the car carrier takes ownership of the vehicle with practically zero book value. In the event that you decide to leave the car in business, this entails savings in property tax. An important argument in favor of leasing is the formation of good credit history. By making lease payments, the company strengthens its name in the US market and facilitates the further use of financial instruments. The leasing company uses accelerated depreciation, and at the end of the lease agreement, the transport becomes the property of the road carrier at a price of 1–1.5% of its original cost.
Unlike a bank loan, leasing provides a reduction in the tax base. Even in comparison with the usual lease, it has real advantages, namely: the purchase of a car into ownership at the end of the lease agreement at a fixed, minimum redemption value and the possibility of renting a property through the trade-in system against new equipment. It is much easier to conclude a lease agreement than to get a loan from a bank since the leased asset itself is security.
We would like to note that 98% of clients receive a positive answer when contacting a leasing company. And this is one of the many advantages of leasing, which does not need proof.
Leasing has the following advantages:
- does not require guarantees and collateral;
- reduces the taxable base;
- allows you to update the vehicle fleet at minimal cost;
- preserves the mobility of finance (does not freeze money);
- protects against inflation and market shocks;
- expands sources of funding;
- accelerates depreciation (as a rule, 2.2-3 times);
- does not increase the passive balance sheet item “Loans and credits”;
- gives a guarantee for the equipment for the entire duration of the lease agreement.
In fact, the above is not a complete list of the benefits of leasing. We can recall the significantly lower monthly lease payments, the ability to drive a car without declaring it in the personal property list, and the simplified procedure for acquiring a car on a lease as compared to a loan, and so on. However, these five examples are perhaps the most illustrative cases when leasing really turns out to be more preferable, convenient and profitable than credit. Leasing is very popular in some markets: for example, in the United States, leased cars account for up to a quarter of the entire primary market.
Tags: finance, furniture financing, installment, leasing, sales