Appliance Financing: What To Know

According to data from HomeAdvisor, appliance prices can range from less than $200 for a small chest freezer to north of $10,000 for a high-end fridge. If you can’t afford to pay for the appliance you want out of pocket, or would prefer not to, you might consider appliance financing.

Personal loans, in-store financing, credit cards, rent- or lease-to-own, buy now, pay later” services (BNPL), or layaway are all options. Which is best depends on what you can qualify for, the cost of the appliance, where you buy it, and the monthly payment you can afford.

What is appliance financing?

Appliance financing refers to any loan or credit card you might use to buy an appliance. Through appliance financing, you get the funds required to purchase what you need — whether that’s a new oven, water heater, or washer and dryer. In return, you pay back the debt, typically with interest, in installments.

There are various types of appliance financing, available through financial institutions, online lenders, and even many stores. Here’s a breakdown of the different types of appliance financing.

Personal loans

You can find personal loans through banks, credit unions, or online lenders. Loan amounts typically range from as low as $600 to $50,000 or more, depending on your credit, income, and the lender. Repayment terms can range from two to seven years, and annual percentage rates (APRs) are lower than credit cards, on average. According to the Federal Reserve, the average APR on credit cards was 21.86%, while the average rate for a 24-month personal loan was 12.33%.

You can prequalify with multiple lenders to get estimates of rates and terms you may qualify for. It won’t affect your credit score, but once you submit your application, a hard inquiry can lower your score by a few points. Prequalification is not an offer of credit and your final rate may differ from the quote.

In-store financing

Some stores offer in-store promotions, such as no-interest financing if you pay in full within a specified period. For example, with the My Best Buy Credit Card, you won't be charged interest as long as you pay off the balance within 18 months. You can also get 10% back in rewards on your first day of purchases once you’re approved.

In-store financing can be a good option if you need an appliance quickly, don’t have the funds on hand, and can pay the balance off in full within the promotional period. The last part is important because some promotional financing offers charge deferred interest. For instance, the same Best Buy credit card above will charge interest on the balance from the purchase date if you don't pay the balance in full within 18 months. APRs on in-store financing may be equivalent to credit card APRs once the promotional period ends. 

Credit card

Using a credit card to cover a large purchase could be expensive if you're unable to pay it off within a few months and don't have access to a 0% APR credit card. However, if you can get a credit card with a 0% APR promotion, you can avoid paying interest on purchases for the duration of the promotional period (which often ranges from six to 24 months). Unlike in-store financing offers, regular credit cards are less likely to charge deferred interest. But it’s a better to pay off the balance before the APR adjusts to the card’s standard rate.

For example, the Capital One Quicksilver Cash Rewards Credit Card has a 0% APR on purchases for 15 months. 

“Buy now, pay later” services (BNPL)

These services allow you to split an eligible purchase into monthly installments that might last three, six, 12, or 18 months, depending on the provider. And you may be able to avoid paying interest if you choose a relatively short BNPL term, such as six months or fewer.

For example, Affirm is a BNPL provider offering special financing on Maytag appliances with APRs between 0% to 36%. Interest-free financing applies to loan terms up to six months, if you qualify. You may also have to pay a down payment, depending on the purchase amount and provider.

Rent-to-own or lease-to-own:

With rent-to-own or lease-to-own options, you can make weekly, biweekly, or monthly payments to rent or lease an appliance. However, you won’t fully own the appliance until you pay it off. If you fail to make payments, the lender can take the appliance.

Rent-to-own arrangements may not charge interest, but you should expect fees that can be comparable in cost to personal loans and in-store financing options. Rental and leasing fees may be included as part of the purchase price, while late fees, non-sufficient funds fees, delivery fees, and optional liability damage waiver fees may be added to the price. As a result, you could end up paying more than the original cost of the appliance with a rent-to-own offer. 

For example, you might decide to get a refrigerator with a sticker price of $1,500. But instead of paying the full amount upfront, you rent to own at $30 for 80 weeks. That’s equal to an APR of about 15.50%. By the time you pay it off, you will have spent $2,400.

Rent-to-own and lease-to-own are similar but have some differences:

• Rent-to-own: Terms for rent-to-own agreements can be weekly, biweekly, or monthly. You can return the item at any time, but generally won’t get your money back. Rent-to-own may not require a credit check or a credit history, so it can be ideal if you have bad credit. However, you may still need a stable income and the first payment ready to go.
• Lease-to-own: Repayment terms vary, but can last up to 12 months. You may also be subject to optional buyout fees if you decide to pay off the amount early. Lease-to-own lenders may not require that you have a credit score, but you could still be subject to a credit check.

Check Out: 6 Types of Personal Loans and How to Choose

How does appliance financing work?

Let’s say you need a new refrigerator that costs $1,450, including tax. If you get a personal loan for $1,450 with a repayment term of one year and a 19% APR, you would have a monthly payment of $134 and pay $154 in total interest.

Instead, you might choose appliance financing through a “buy now, pay later” service (BNPL), that has repayment terms of six, 12, or 18 months; for terms up to 12 months, interest is 0%.

If you pay off the loan within 12 months, you’d pay $120.83 each month and $0 in interest. If you choose an 18-month term and were approved for a 15% APR, monthly payments would be $90.45 and you’d pay $178.19 in interest.

The best appliance financing option for you will largely depend on what you can qualify for and the monthly payment you can afford. In most cases, it’s better to choose an affordable monthly payment over one you might struggle to pay, even if it's a 0% offer.

Pros and cons of appliance financing

Before taking on any appliance financing, consider the pros and cons to avoid surprises.

Pros:

• You get the appliance you need: Appliance financing can help you get what you need now, even if you don’t have all the funds to pay for it right away.
• Relatively easy approval (depending on financing option): Using in-store financing or going the rent-to-own route may make it easier to get approved for financing, especially if you have fair or bad credit.
• Interest-free promotions: Some appliance financing is available interest-free for a promotional period, such as 12 to 24 months. If you can pay off the loan during that time, this perk could help you save hundreds in interest costs over the life of the loan.

Cons:

• Can be expensive: Depending on the type of appliance financing and your credit, you could pay much more to finance an appliance compared to paying cash, especially if you have bad credit or need a repayment term longer than one year.
• Deferred interest: 0% interest promotions expire after a certain number of months. If the loan isn’t paid within that time frame, you may have to pay deferred interest on the entire purchase amount from the date of purchase, based on the loan’s or card’s standard APR. In other words, any gains you saw from paying 0% interest would be immediately erased. 

Appliance financing alternatives

Here are some financing alternatives for appliance financing.

• Layaway plans: If you can wait, you could potentially put your appliance on a layaway plan and pay it off over time with no interest. But you may have to put down a deposit and fees. The deposit can be a set amount or a percentage. With layaway plans, you only get the item once it’s paid in full.
• Save up: Consider setting aside extra funds monthly to save up for the appliance if you don’t need it right away. This can save you money on borrowing costs and help you avoid any fees associated with a layaway plan.
• Appliance repair: If you have an appliance that broke, it might not need to be replaced, but only repaired. Contact an appliance repair company for rates, and determine whether it’s worth it.