Who doesn’t love this affordable, Swedish, flat-pack haven? When it comes to furnishing your home, IKEA is everyone’s go-to one-stop shop, but when it comes to payments, it might be best to save up rather than splash out with in-store financing.

What is financing?

In-store financing, simply put, is a loan to pay for your purchases to be repaid in fixed instalments. That loan will require an interest payment, although often businesses offer an introductory 0% APR for a certain period of time. In-store financing is most commonly used to spread out the cost of big-ticket items and if often marketed as free money (which it can be… until it isn’t).

What is APR

APR stands for Annual Percentage Rate and it is a percentage value reflecting the annual costs of a loan. This number includes the interest rate as well as any other fees, making it more representative of the actual cost of the loan than the interest rate alone.

How does IKEA financing work?

IKEA, like many retailers, offer in-store and online financing, allowing customers to spread out the cost of purchases.They offer a few different financing options depending on the value of the loan and whether the purchase is made online or in-store.

In-store financing

For in-store financing, rates are far more varied than for online offerings. 12-month interest-free financing options are available for purchases over £600, 24-month options are available for purchases over £1,200 and, finally, 36-month options available for purchases of £3000 or more.

Online financing

IKEA’s online financing options are a lot more simple. Instead of 12 months, they offer 4 months 0% APR for loans upwards of £99 or more.

What’s the problem with in-store financing?

The biggest risk with any loan like this is not being able to meet the repayment schedule. Although there may be an interest-free period, once that expires, the payments- and therefore your debt, will start racking up making it harder and harder to pay off. Even if you manage your repayments effectively, having too many credit agreements can harm your credit score and be problematic if you ever apply for a mortgage.

The other issue with in-store financing is that it encourages you to spend money you don’t have, encouraging what we call ‘bad habits debt’. When borrowing becomes habitual, your debt can get out of control and have serious long-term consequences on your future finances. If you want help transforming your mindset, and the state of your finances, have a read of our Money Mindset post here.