In 2021, IKEA upgraded its financing options, including the IKEA Finance Services loan. This deferred payment option is available for smaller budgets and is designed to be significantly more flexible compared to previous financing options.
Interested? Let’s take a look at how it works, what’s required to qualify, and what’s the catch to this new payment system.
What is the IKEA Finance Services loan?
If you are a fan of the Swedish retail giant, then you will be pleased to hear that IKEA has introduced an interest-free credit option to its finance products.
The IKEA Finance Services loan is available on purchases from £99 to £15,000. Repayments can be spread over periods of between three months and four years. And best of all, the deferred payment scheme is interest-free.
In other words, shoppers can pay off their furniture purchases during a specified time frame without incurring any interest charges, improving the affordability of renovation projects.
How does it work?
You can apply for the IKEA Finance Services loan in-store, online or by downloading the IKEA finance app.
How much you borrow will determine the duration of the loan. As of November 2024, the current payment duration periods are:
- £99 to £1,199 – 3 months
- £99 to £2,9998 – 6 months
- £300 to £4,499 – 10 months
- £600 to £4,499 – 18 months
- £3,000 to £15,000 – 30 months
- £5,000 to £15,000 – 48 months
The maximum amount you can borrow is £15,000.
While this service shares a lot of characteristics with a ‘Buy Now, Pay Later’ scheme, it is, in fact, a loan. The credit is provided by Ikano Bank, where IKEA acts as an intermediate broker. As such, you will have to provide proof of employment status, a valid full-photo driving license or valid UK passport, and proof of UK address from the last two years. You will also have to undergo a credit score check to ensure you qualify for the loan.
What are the advantages?
IKEA has always had some financing options available to customers. Home purchases can be quite expensive, especially when renovating multiple rooms. So, to improve affordability, the retailer has offered a range of payment solutions to spread the cost of purchases over time using loans with interest and interest-free in-store credit.
However, these older solutions were quite rigid, requiring a minimum spend of £300 with a minimum repayment schedule of 12 months.
The new IKEA Finance Services loan is far more flexible. The minimum spend has been lowered to £99, and the repayment window can stretch from only a few months to several years. As such, the barriers to entry for customers have been reduced, boosting business for IKEA while also supporting consumers – a win-win situation.
It works much more like PayPal credit or Klarna, giving customers the option to borrow as much or as little as they need while keeping the repayment timeline versatile. If you are purchasing a bigger ticket item, you can borrow more and spread the cost over a longer time period.
However, the biggest advantage is that any amount borrowed under the IKEA Finance Services scheme is interest-free. As long as shoppers keep up with their scheduled payments, there will be no interest to pay.
Is there a catch?
There are a few considerations that shoppers need to take into account. Firstly, this new payment method is subject to availability. As such, you may be met with a “Unfortunately, we are not taking applications at this time” error. In other words, there’s no guarantee that these loans will be available when you need them. Alternatively, only a certain amount of credit will be offered, which could be less than expected.
Furthermore, as previously mentioned, shoppers will have to undergo a full credit check when submitting their loan application. This will appear on your credit score, and if the loan is rejected, it could damage your credit score.
You will also need to be at least 18 years old to apply. It’s also important to remember that this loan essentially acts as a form of store credit. That means it can only be used for purchases at IKEA and not at any other similar retailers. If you’re planning to buy products from multiple retailers, a 0% purchases card may be more suitable.
The good news is you can check whether you would be eligible for a 0% purchase card ahead of time using tools like a credit card eligibility checker. This is usually a sensible idea even before applying for an IKEA Finance Services loan, as it can reveal any issues with your credit and give you the opportunity to fix them before making an application. That way, the risk of rejection is minimised, and your credit score is better protected.
Does IKEA allow monthly payments?
Yes. Depending on the amount borrowed and the duration of the loan, you will be required to repay a certain amount each month. IKEA has provided a monthly payment calculation tool that shoppers can use before submitting an application.
For example, someone borrowing £99 over three months will have to repay £33 each month. It’s important to note that failing to keep up with payments can incur late payment fees that can considerably increase the cost of repaying the loan.
What credit score do you need for an IKEA Finance Services loan?
Applications for IKEA Finance Services loans in the UK are processed by Ikano Bank. Based on their listed requirements, anyone with a ‘Good’ credit score is eligible. However, those with weaker scores may still be eligible if they have a good credit history.
However, there are some situations that, regardless of credit score, disqualify an applicant. These include:
- You have a credit history that includes a loan default, an Individual Voluntary Arrangement (IVA), a Debt Relief Order (DRO), or a recent County Court Judgement (CCJ).
- You have an active Power of Attorney.
- The application is made with a business account or a joint bank account that requires two signatories.
- You have previously declared bankruptcy.