Hurricane Irma came through and set us all about more then we’d like. No secret there.
Now as we rebuild many folks are finding out that our insurance coverage wasn’t as thorough as expected. Talk about a screwy situation. It usually has to do with building code changes. You see, generally insurance will only cover restoration to the structure as it was built… but substantial building code changes require substantial structural enhancements or alterations changes to complete the repairs to code thus leaving many homeowners with a ‘gap’ that they need to fund out of pocket.
Many contractors will be quick to offer their customers some kind of financing deal for that gap. Let me just tell you frankly, it’s a bad deal. Here’s why:
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!