Appliance Financing Options for Good and Bad Credit
Waking up to a leaky water heater or a fridge on the fritz isn’t the best way to start your day. After all, a standard water heater is likely to set you back several hundred dollars, while a new refrigerator could be several thousand. Luckily, there are plenty of appliance financing options that could help you bear the brunt of this large, unexpected expense.
What is appliance financing?
If you need new home appliances but can’t afford to buy them outright, you may be considering financing your purchase. Appliance financing involves borrowing money in the form of a loan or line of credit and repaying it over time. Depending on the type of financing you choose, you might be required to make a down payment.
The specific terms and conditions of appliance financing will depend on the method you choose and your creditworthiness. The lowest rates and best terms are typically reserved for borrowers with excellent credit. Appliance financing usually comes with interest, unless the lender is running a promotion or you qualify for 0% APR financing.
Appliance financing options
Whether you’re considering upgrading your kitchen or need an emergency replacement for your old washing machine, you have options for financing your appliance purchase. The best choice for you will depend on your financial situation.
Personal loan
Personal loans are a form of unsecured debt that are commonly offered by banks, credit unions and online lenders. You can use personal loans for virtually anything, including home improvement projects like buying new appliances.
Funds are issued in a lump sum and repaid in monthly installments over a set loan term. Personal loans come with fixed interest rates, so your loan payments will be the same each month. You may even be able to get a quick loan for same-day funding. Be sure to use a personal loan calculator to estimate the total cost of borrowing so you can be sure that you’re making the right financial decision.
| Pros | Cons |
|---|---|
Fixed interest rates Could be easier to budget since payments are the same each month Tend to have lower interest rates than credit cards, as long as you have excellent credit | Although some lenders specialize in bad credit loans, interest rates can be high for borrowers with poor credit May have to pay a loan origination fee Can only borrow one lump sum rather than on a rolling basis (like a credit card) |
Best for
Borrowers with good or excellent credit who would like to receive their funds in one lump sum.
How to qualify
The process of applying for a personal loan is similar to that of a credit card. The best loan terms and interest rates are reserved for those with the best credit profiles. When determining your creditworthiness, lenders will assess factors such as your credit score, debt-to-income ratio and payment history.
Credit card
A credit card is a line of credit that you can continuously borrow from, as long as you haven’t hit your predetermined credit limit. As you spend, your balance increases. Every time you make a payment, your balance decreases, freeing up funds that you can borrow from again. If you carry a balance from one month to the next, it accrues interest.
Borrowers with strong credit may qualify for credit cards with a promotional 0% APR financing period, which typically lasts between 12 and 21 months. With these types of cards, you can make purchases and repay your debt without fees. However, if you don’t repay your balance before this period ends, you may be hit with deferred interest charges.
| Pros | Cons |
|---|---|
Low (or no) APR for borrowers with excellent credit, depending on the card Convenient and widely accepted payment method May earn travel miles, cash back or other rewards | Typically has a variable interest rate that fluctuates based on the current market Possible annual fee Can take discipline to avoid overspending |
Best for
Borrowers with excellent credit who can qualify for a 0% APR promotional period.
How to qualify
Borrowers must fill out an application and agree to a hard credit check. The card issuer will then review factors such as your debt-to-income ratio, annual income and credit score. You’ll need to provide personal information, including your Social Security number.
In-house financing
If you’ve ever used a store credit card, then you’ve taken advantage of in-house financing. Many large retailers offer in-house financing as a way to promote shopping loyalty, including Home Depot and Lowe’s. Store credit cards are very similar to standard cards, but they can usually only be used at the issuing retailer.
If you shop at the store where you intend to buy your appliances often, these cards can be a good choice. In addition to giving you the option to break up big purchases into more manageable, monthly payments, these cards may offer sign-up incentives, like interest-free financing for a certain period of time.
| Pros | Cons |
|---|---|
Store could offer exclusive sales if you use in-house financing Many in-store finance offers come with a 0% APR promotion Can help build or improve your credit | Interest rates tend to be high if 0% APR is not offered Can only be used at the chain of stores that issued the in-house financing Not all applicants will qualify |
Best for
Frequent shoppers of a particular store or borrowers looking to build credit.
How to qualify
Eligibility requirements are typically less than a traditional credit card. In-house financing is usually available to borrowers that have fair credit or better.
Rent to own
Renting to own essentially means that you are leasing your appliance. Depending on your contract, you’ll make weekly, bi-weekly or monthly payments to the store, and each time you make a payment, your lease is renewed. With enough payments, you’ll eventually own your appliance. Like a personal loan, your balance accrues interest.
Rent-to-own agreements often don’t require a credit check, making them more accessible to bad-credit borrowers. But watch out — the fees on a rent-to-own program can be very steep, making this a very expensive way to borrow money. And since this financing method is secured by your purchase, you risk losing your appliance if you’re unable to make the payments.
| Pros | Cons |
|---|---|
More payment options available than with other types of financing You can return your appliance at any time, though you won’t get any money back Usually no credit check | Traditionally offers the highest APRs, with some bordering on predatory lending practices May require a down payment and list of references Rent to own is a type of secured loan — if you miss enough payments, your appliance will be repossessed |
Best for
Consumers with bad or no credit.
How to qualify
Borrowers will need to sign a rental contract and may need to provide proof of income. A credit check is usually not required.
Is appliance financing with bad credit worth it?
If your credit isn’t perfect, appliance financing may still be worth it, especially if you’re in a bind. However, appliances financed with bad credit cost much more in the long run, thanks to high interest rates and other fees.
To boost your chances of securing financing with moderate interest rates, you might consider applying for a personal loan with a cosigner. You could also explore financing options that don’t require a credit check (such as rent to own). But be forewarned — borrowers with subprime or no credit could find interest rates in the triple digits.
Frequently asked questions
Paying for your appliance upfront is your best bet since you’ll avoid interest and fees. However, if one of your appliances breaks and you don’t have the funds immediately available to replace it, financing could be a great solution — especially if you’ve got the credit to qualify for a 0% APR credit card or one of our favorite small personal loan lenders.
Most lenders and card issuers will run a hard credit check when you apply for financing, which will cause your credit score to temporarily drop. However, prequalification does not hurt your credit score and allows you to shop around for the best terms. Once you do take out a loan or credit card, making on time payments will help boost your credit score.
If you’re looking for the best appliance sales, you may want to shop around major holidays, especially President’s Day, Fourth of July, Memorial Day and New Year’s. You can usually find cheap appliances on Black Friday and Cyber Monday, too.