What Your Contractor Won’t Tell You About Their Financing Offers [And What You Need To Know]

I’m consistently shocked by how many people take the bait and get ripped off when they finance a home improvement through their contractor.

Many contractors offer their own in-house financing options which make it easy for you to get their services.  Usually they offer some type of appealing financing solution such as ‘12 months no interest or no payments’ or ‘84 months at the low interest rate of 3.99%’.  Either offer might be hard to pass up.  If you have the cash, the no interest no payments might seem like free money for a year, in which you can keep your cash on hand in case of emergencies, or to invest.  If you need a low monthly payment to make your budget, the 3.99% interest rate seems like a great deal for the amount of value the home improvement project will bring.  However, all is not as it seems!  The numbers you see on the front end are hardly transparent!

What I Am About to Tell You Will Shock You

The financing is just a sales tool.  All the fancy numbers, and killer financing deals are just there to get the sale.  In fact, the 3rd party financing companies that offer financing solutions to contractors promote this concept as a way to increase sales. They want you to get stuck on the financing details and forget about the overall price of the project and/or think that you can’t get the same deal anywhere else.  Then the salesman drives this point home with their tactics to ‘close the deal’.

They have hidden fee’s which cause price to go up.  Here’s the big secret, the financing isn’t free.  There are usually hidden fee’s that get built into the price.  Let me explain: when a contractor sells a project with financing, the contractor has to pay the financing company a fee, a percentage of the project.  This is sometimes called a contractor’s fee, dealer fee, merchant fee, or discount fee.  The fees vary based on the type of plan they are offering.  Basically the better the financing deal seems, the higher this hidden merchant fee will be.  In some cases, I’ve seen the fee as high as 30%+.

Now you will never see the merchant fee, but you pay it – the contractor certainly is not going to eat it.  You pay it indirectly as it as the contractor will simply factor these merchant fees into their price.  If the contractor plans on offering a financing plan with a merchant fee of 20%, they simply raise their price 20%!

The finance company probably sucks.  Contractors don’t finance their project themselves, they use a 3rd party financing company.  The companies they use often don’t have a good reputation for being consumer friendly.  Just look them online and I’m sure you’ll find dozens (if not hundred) of negative reviews on the company your contractor would get you financing through.  I’ve even seen a major company that doesn’t even have online access to your loan.  Yes, in 2017 a major financing bank doesn’t even let their customers have online access.  What baloney!

You’re better off getting your own financing.  Depending on the terms, (99.9% of the time) it’s a better financial decision to get your own financing.  Many of the home improvement loans pushed by contractors have extremely high interested rates well above 20%.  That’s borderline criminal!  I’ve found financing options, for cabinets, pools, roofing, or any other home improvement that have less that a 4% interest rate.

Even if you’re considering taking one of the ‘no interest no payment’, you’re probably best served just getting a no payment credit card, as in this scenario you can focus on the bottom line price your contractor can offer, and then you avoid their finance company.

You can get a cash discount Even If You Finance.  You can still finance your entire project and get a cash discount!  All the financing programs or lending banks I recommend on this site, fund you directly.  Your contractor will never know that you have any financing at all (and quite frankly its none of their business).  The money will be in your bank account, and then you can pay the contractor CASH.  This give you the power to negotiate a cash discount (since the contractor will not have to pay any merchant fees) as I explain here.

Here are the financing programs for home improvements I’ve found with the best rates, and best business practices, that fund you directly, so you can get a cash discount!

SSo who do I recommend?  In a world of shady finance deals I’ve found these companies to be kosher, when it comes to home improvement financing!  Their rates are generally even been than those credit unions and local banks.  They are all fully transparent — no hidden fee’s — the interest rate you see, is what you pay.  And you pay your contractor in cash — no more awkward conversations about ‘payments’.  The application process for them is fully online as well!

  • Lightstream Good To Excellent Credit. These guys have by far the best rates, for good those with good to excellent credit.  They offer home improvement loans from $5,000 to $100,000 and rates as low as 3.99%.  Get Your Rate
  • SoFI Good to excellent credit. There guys are very competitive with Lightstream and tend to have little less stringent credit requirements.  Like Lightstream they do loans from $5000 – $100,000 for general home improvement loans.   See Rates »
  • Prosper Excellent, Good & Fair Credit.This peer to peer lender (don’t get confused, it works just the other options), works with all credit and offers loans from  $2000 to $35,000 with rates from 5.99%.  Find out your rate.

Not sure where to start?  Since similar credit inquiries made with in a shot time period only count has one on your credit report, check them all, and shop around for the best rate!

The HIDDEN Fee Behind Home Improvement Financing

…and how you can avoid it!

Summary: Its not just interest and payments.  Most home improvement loans offered by contractors come with a hidden fee that causes your price to go up.  Here I tell you what it is, and how to avoid it.

Begin: You take up the starting position on your couch every weekend. You tell yourself that you are ready to tackle your list of chores, but instead you flip through the channels and find the home improvement shows. It’s hard to resist back to back to back episodes of normal people buying, selling, and renovating homes, and by the end of it you feel like you know enough to conquer the world.

The truth is, those shows are fairly misleading, because rarely do they talk about the financing behind the budget. Rather, they focus solely on how much the homeowners have to spend and where it is best used. Plus, you watch as these renovations increase values of homes, thinking yes, this is realistic, before you’ve ever spoken to a contractor! The truth is it’s going to take longer and cost more than the jobs you’ve seen being completed on those home improvement shows, and financing will be a necessity unless you have a large savings in reserve.

Behind most loans offered by home improvement contractors are hidden fees. Find out what they are and how to avoid paying them!

Sadly, there are hidden fees that come with home improvement financing. You certainly won’t know about them and you won’t hear many talk about them – except for me. At the end of the day, everyone is in a business and they’re trying to make money from it, and you’re the person trying to navigate the situation to get the best deal possible.

Once you’ve set your budget and gotten estimates, your contractor might extend an offer of financing to you. It will sound incredible. 60 month terms at 2.99% interest? WOW! Yes, it sounds great, but the truth is that there are hidden fees with this type of financing. Think about it, do you really believe that your contractor is going to finance your project out of the kindness of his heart and wait for you to pay him back? Nope. Contractors are in business with the finance companies to offer financing to their customers. That sounds like the next generous thing they could be doing, right? Well, not exactly.

It Is Not What Your Think

Now you might be thinking “well they probably just make their money on the people that don’t pay it back in 18 months and get whacked with an outrageous interest rate”.  Yes that is true, the lending companies do make a pretty penny off of that, but there another whammy hidden in the numbers – that you still pay even if you pay it off in the 18 months.  Your contractor financing likely has a hidden merchant fee.  A fee that he (or the company) pays to the financing company every time they sell a financed project. If you don’t think the fee could be much, it can be as much as 30%+. Basically the ‘better deal’ it seems like you’re getting (ie. Longer duration of no payment or interest, lower loan rate), the higher that hidden merchant fee is.  It appears as though it’s a fee that the contractor will handle, but in all honesty, he will just inflate his price to cover that additional fee. So, if you’re aiming for a $35,000 loan to get the kitchen of your dreams, then that merchant fee will be quite a hefty price to pay to achieve it.

3rd Party Loan Is Always Better

The contractor financing isn’t the only option available to you, in fact, it’s the most expensive option that is available to you. Rather, you should take the time to see what third party finance companies have available. Whether you have excellent credit, or poor credit, there are plenty of finance companies that will cater to your needs, budgets, and provide you with a better interest rate than your contractor will.  These third party finance companies let you keep your financials to yourself, avoid the awkward ‘financing sales pitch’ and put you in the driver’s seat to getting a lower overall price on the project.

So who do I recommend?  In a world of shady finance deals I’ve found these companies to be kosher, when it comes to home improvement financing!  Their rates are generally even been than those credit unions and local banks.  They are all fully transparent — no hidden fee’s — the interest rate you see, is what you pay.  And you pay your contractor in cash — no more awkward conversations about ‘payments’.  The application process for them is fully online as well!

  • Lightstream Good To Excellent Credit. These guys have by far the best rates, for good those with good to excellent credit.  They offer home improvement loans from $5,000 to $100,000 and rates as low as 3.99%.  Get Your Rate
  • SoFI Good to excellent credit. There guys are very competitive with Lightstream and tend to have little less stringent credit requirements.  Like Lightstream they do loans from $5000 – $100,000 for general home improvement loans.   See Rates »
  • Prosper Excellent, Good & Fair Credit.This peer to peer lender (don’t get confused, it works just the other options), works with all credit and offers loans from  $2000 to $35,000 with rates from 5.99%.  Find out your rate.

Not sure where to start?  Since similar credit inquiries made with in a shot time period only count has one on your credit report, check them all, and shop around for the best rate!

No Interest – No Payments For 18 Months: How Same As Cash Home Improvement Financing Screws You

Recall that HVAC Contractor Offering ’18 Months Same As Cash’ aka no interest, no payments for a brand new Trane AC system? Sounds like a great deal right. 18 months of ‘free money’. We all know nothing is really ‘free’, so what’s in it for this company doing same as cash? To most consumers the answer is obvious, a REALLY high interest rate if you don’t pay it off in 18 months. That’s true, those types of financing deals do whack you with an outrageous interest rate after the promotional period, but there’s even more going on behind the scenes.

The financing companies (I’ve never seen a contractor financing in-house, they all use 3rd party) that offer these plans generally charge a ‘merchant fee’ or ‘dealer fee’. You could think of it like a closing fee… that you never see. Let me explain further. When you buy that nice new 6 ton, ultra energy efficient air condition unit for $5,000, and take the free money, ‘same as cash deal’, the contractor that sold you the system pays a fee to the company that does the financing. Yes, you read that right. The contractor who sold you the system, and closed the deal, pays the financing company a fee. You never see it, and you’re not supposed to know it changed hands. How much you might ask? The fee’s are based on a total percentage of the amount financed, and vary based on the type of plan. On an 18 month plan like this, the fee would likely be around 15%. In other words, $600 just went to the financing company. And you paid for it!

high interest rate

Contractors that offer these types of financing options, don’t just eat the cost. They build it in to their price. If their financing option is going to cost 12%, they just mark up their price 12% and sell you on the financing. Now we see that the free money, ‘no interest no payments’ isn’t free at all. You pay for it! You’re better option is going with a 3rd party lender, and then getting the best price you can on the services you need financing for whether it is an HVAC system or new kitchen cabinets. I’ve gone ahead and compiled the 5 best home improvement loan options below.

The amount of the merchant fee varies from program to program. For example a 6 month same as cash program would have a lower fee, and on the flip side, a 24 month program would have a higher fee. Usually, the ‘better’ a financing offer sounds the HIGHER the merchant fee is. I’ve seen merchant fees as high as 35%. Think about that, you’re paying 35% extra and you had no idea.

So who do I recommend?  In a world of shady finance deals I’ve found these companies to be kosher, when it comes to home improvement financing!  Their rates are generally even been than those credit unions and local banks.  They are all fully transparent — no hidden fee’s — the interest rate you see, is what you pay.  And you pay your contractor in cash — no more awkward conversations about ‘payments’.  The application process for them is fully online as well!

  • Lightstream Good To Excellent Credit. These guys have by far the best rates, for good those with good to excellent credit.  They offer home improvement loans from $5,000 to $100,000 and rates as low as 3.99%.  Get Your Rate
  • SoFI Good to excellent credit. There guys are very competitive with Lightstream and tend to have little less stringent credit requirements.  Like Lightstream they do loans from $5000 – $100,000 for general home improvement loans.   See Rates »
  • Prosper Excellent, Good & Fair Credit.This peer to peer lender (don’t get confused, it works just the other options), works with all credit and offers loans from  $2000 to $35,000 with rates from 5.99%.  Find out your rate.

Not sure where to start?  Since similar credit inquiries made with in a shot time period only count has one on your credit report, check them all, and shop around for the best rate!

How John Watkins Saved $2,000 On His Kitchen Remodel

… and Got a Better Interest Rate

You understand how stressful any type of home improvement project can be. It isn’t just the budget, or even the style, and finding the perfect contractor. Finding the proper financing can be the biggest pain of them all. You find yourself tempted by the contractors offer of financing your big remodel. It sounds like a great deal, and it’s straightforward and easy. Once you accept, you can get the ball rolling on your big project, and you don’t need to deal with the hassle of checking out other options.

But wait…

John Watkins had big plans for his kitchen remodel, and he had big decisions to make when it came time to handle the financing. He could choose the offer from the contractor, and at 18 months’ interest free no payment it was an attractive prospect. Or, he could get a better interest rate, and savetwo thousand dollars. How on earth did he manage that, you ask?

Well John Watkins is smart, he took our advice and choose a third-party financing company to work with and got a cash discount.

Why? Well, because John Watkins understood what we were saying. He knew that contractors inflate their prices to cover the merchant fee. Wait, what? Yeah, the merchant fee! Contractors that offer financing can do so because they work with the finance company! They’re not going to front the money for your project, by themselves. Because they work with the finance company, they’re subject to a merchant fee, which can be as high as 19%! The contractor won’t be paying that fee, they will be working it into your invoice to ensure they walk away with the bottom line they need.

John Watkins understood the advice that we offered, he took heed, and went on a mission to save money and get a better interest rate in the mix, too. While it may be easy to accept the financing from the contractor, John brushed that off and invested time into finding a third-party financing company that could provide him with the perfect loan for him.

The choice is ultimately yours, you can take the “easy” way out and accept the financing from your home improvement contractor. Or, you can get an even better interest rate, all whilesaving money… how? Just by looking at some of the incredible offers that third-party financing companies have to show you. Whether you have excellent credit, good credit, fair or poor credit, there is a finance company that caters to you and can offer you a variety of loans, that will cater to your budget, fit your needs, and save you from paying that heinous merchant fee.

John took our advice, got a better interest rate, and saved $2,000. John is smart. Be like John.

How Adam Richards Financed His Roof Replacement & Got A Cash Discount

Roof replacements are an inevitability for homeowners. Everyone will face the decision at some point to repair a multitude of leaks, or sagging beams, or just replace the entire roof. Like any big costs, though, these types of issues tend to crop up when you least expect them and don’t have hefty savings to turn to, to cover the cost.

That’s when many turn to financing. Many people automatically choose the finance offer from the contractor, simply because it’s convenient. Convenience costs money, though. Why would you take the easy way out when it’s going to cost you much more in the long run?

Adam Richards was willing to go in search of third-party financing for his roof replacement. His contractor made a tempting offer of, 36 months of no interest which sounded great, but what Adam Richards discovered, thanks to us, is that the offer likely came with an ‘under the table’ merchant fee well beyond 17%.

Adam Richards understood that the merchant fee would simply be passed on to him, costing him more money for his new roof financing than it really needed to. Thanks to our advice, though, Adam Richards had the wisdom to look for his new metal roof with financing from a third-party finance company.

Not only was Adam Richards able to save money by going third-party and getting a better interest rate, he was able to get a cash discount.

Say what? Yes, many contractors will offer a cash discount for their customers who are able to pay for cash for the project, because they won’t have to pay the merchant fee that they factor into their pricing. Taking out a home improvement loan, outside of his contractor, gave Adam Richards the cas he needed to secure a cash discount, and had him laughing all the way to the bank.

Had he financed his roof replacement through the contractor he probably would have had a higher interest rate thus paying more money, and he would have missed out on the cash discount.

You see, the contractor financing offer is meant to look attractive to lure you in to accepting it. Like anything, though, if it seems like it is too good to be true, then it probably is. The contractor is simply trying to get a boost to his bottom line, and his way of doing that is by partnering with a finance company.

Don’t fall prey to a tempting offer, or pay a merchant fee when you simply don’t have to! Take the time to look at the many options available from third-party finance companies and save yourself some serious money. It doesn’t matter what your credit score is, there is a perfect fit out there for you. You can find a company that will offer financing to suit your needs, at an appropriate interest rate, and terms that work for you. Why pay over the odds when you don’t have to?

How To Finance Your Home Improvement AND Get A Cash Discount!

The cash discount, the nice discount that is afforded to the rich folks that can pay cash for their home improvement projects. I should make it clear, that not every contractor offers a cash discount, in fact my company does not – we also do not offer in-house financing for the reasons I mention here (link site: How Same As Cash Home Improvement Financing Screws You). If your contractor does offer in house financing though, there is a good chance they will do a cash discount. Check it out. As I’ve explained in other posts, financing banks charge contractors a ‘merchant fee’ when they sell a financed project. If the financing company charges a merchant 10% on $9,000 low interest rate loan, the contractor, whether he’s doing cabinets, or a new pool, must pay the financier the 10% merchant fee. Of course, he didn’t really pay it, you did. That 10% was built in to the pricing structure all along. Now if you are paying with cold hard cash, why should you be paying the merchant fee? You shouldn’t.

When a contractor offers financing programs, they plan-for the merchant fee to come out of their bottomline and raise their prices to compensate. Because any contractor who is offering financing, has built the merchant fee into the pricing, you’ve got some room for negotiation if you’re paying cash. In theory the contractor could discount your price equal to the amount of the merchant fee and still make the same bottom line, so what difference does it matter to him. This is why you need to negotiate for a cash discount.

How You Get The Cash Discount

Of course you need to be able to pay with cash to get a discount. Here’s where the financing solutions I outline below come in to play! You can get a home improvement loan from any of the companies below (usually at a waaaay better rate than from an in-house financing offer), and they fund you directly. The money goes right into your bank account. These companies do not lock you in with a contractor, and in fact the contractor will have no idea that you’re financing the project! With the money in your bank account, you’re free to hire which ever contractor you want, and thus you will be paying them with cash, and you are eligible for a cash discount.

So who do I recommend?  In a world of shady finance deals I’ve found these companies to be kosher, when it comes to home improvement financing!  Their rates are generally even been than those credit unions and local banks.  They are all fully transparent — no hidden fee’s — the interest rate you see, is what you pay.  And you pay your contractor in cash — no more awkward conversations about ‘payments’.  The application process for them is fully online as well!

  • Lightstream Good To Excellent Credit. These guys have by far the best rates, for good those with good to excellent credit.  They offer home improvement loans from $5,000 to $100,000 and rates as low as 3.99%.  Get Your Rate
  • SoFI Good to excellent credit. There guys are very competitive with Lightstream and tend to have little less stringent credit requirements.  Like Lightstream they do loans from $5000 – $100,000 for general home improvement loans.   See Rates »
  • Prosper Excellent, Good & Fair Credit.This peer to peer lender (don’t get confused, it works just the other options), works with all credit and offers loans from  $2000 to $35,000 with rates from 5.99%.  Find out your rate.

Not sure where to start?  Since similar credit inquiries made with in a shot time period only count has one on your credit report, check them all, and shop around for the best rate!

Opinion: Don’t Buy from a Contractor that Offers Financing

Financing your home improvement project can be tricky and stressful, but don’t opt for convenience in terms of your financing because of this. Though going through the contractor could be easy and help you avoid the hassle of the research, you could end up spending way more than originally planned. Plus, with terms like “no interest, no payments,” they lead you to believe they’re giving you the best deal out there.

What’s so bad about it?

To offer you that financing option, contractors are in deals with financing companies. It is not the contractor’s company that finances you. These companies charge the contractors a merchant fee, sometimes referred to as a dealer fee, to offer the financing. The contractor doesn’t just eat that cost, however, he or she builds it into the product or the estimate, charging you more to make up for their deal. In doing this, you could be paying up to 30% extra on top of the work for a worse financing deal than if you would have just gone to an outside lender. Beyond that, interest rates tend to be higher from the financing companies they use and they have hidden fees.

They don’t pick the best companies

Each loaning option and lender are different; it’s important to find the financing that is right for you so you don’t end up paying more than you should or receiving (and having to pay back) a higher loan than you need. The companies that work with the contractors tend to have negative reviews. Most of their business comes from them hiding behind the contractor so you don’t research their poor reviews. The convenience of not doing the research can bite you in the butt financially.

Going outside the contractor is a better deal

You can get a better financing option that suits your needs if you go outside of the contractor. Plus, most loans will give you a lump sum, so the contractor never knows you even needed financing; it looks like you just had the money. You could find a much lower interest rate, a more customizable repayment plan, and have a better knowledge of what your loan entails by going through another company. The financing companies the contractors work with aren’t always the most transparent when it comes to the terms of your loan. As said before, there is a tendency for these companies to have a lot of hidden fees that hike your price up beneficial and unbeknownst to you.

When you’re refinancing for home improvements, don’t settle for less by agreeing to use the contractor’s financing. With a little research, you can find a company and loan option that better suits your needs without screwing you over on hidden fees and interest rates. It’s important to keep in mind that these contractors are acting as salesmen when they offer you these financing options. They’ve already paid the fee and want you to take that option so they can charge you more.

 

So who do I recommend?  In a world of shady finance deals I’ve found these companies to be kosher, when it comes to home improvement financing!  Their rates are generally even been than those credit unions and local banks.  They are all fully transparent — no hidden fee’s — the interest rate you see, is what you pay.  And you pay your contractor in cash — no more awkward conversations about ‘payments’.  The application process for them is fully online as well!

  • Lightstream Good To Excellent Credit. These guys have by far the best rates, for good those with good to excellent credit.  They offer home improvement loans from $5,000 to $100,000 and rates as low as 3.99%.  Get Your Rate
  • SoFI Good to excellent credit. There guys are very competitive with Lightstream and tend to have little less stringent credit requirements.  Like Lightstream they do loans from $5000 – $100,000 for general home improvement loans.   See Rates »
  • Prosper Excellent, Good & Fair Credit.This peer to peer lender (don’t get confused, it works just the other options), works with all credit and offers loans from  $2000 to $35,000 with rates from 5.99%.  Find out your rate.

Not sure where to start?  Since similar credit inquiries made with in a shot time period only count has one on your credit report, check them all, and shop around for the best rate!