As a homeowner, we are drowned almost daily with mailers, fliers and online advertisements for home remodel financing. Many of those offer interest free financing, but there is always a catch. In this post we will unpack the workings of interest free financing, the real costs and the top financing options for homeowners.
The real cost of interest free financing
First, it is important that we establish that companies, including banks and home remodelers, are in business to generate income and grow their revenue. Offering 0% interest loans does not lend itself to good business practices unless there are other factors at play. So how do banks and remodeling companies make that work? Simple. They depend on revenues from the deferred interest and late payment fees collected from borrowers that struggle to pay off the loan during the no interest promotional period. As of this writing, that’s about 19% of borrowers of no interest promotional loans.
“While there truly are some no-interest loans out there, this does not mean zero cost. And many no-interest loans have catches that could cost you a pretty penny.” -Credit Karma
No interest and buy now, pay later facts
- 55.8% of consumers have used a buy now, pay later service
- 31% of buy now, pay later borrowers made a late payment or incurred a late fee.
- Growth was largest in the 18 to 24 (62% growth) and 55+ (98% growth) age groups between July 2020 and March 2021
Statistics provided by The Ascent
Remodels that include siding, windows or roofing usually cost in excess of $12,000, while promotional periods usually last 24 months or less. This leads to many borrowers not being able to afford to pay off during the promotional period, leaving them with a hefty deferred interest fee and high APR that costs far more than a conventional low interest loan.
For example, a $30,000 siding and window remodel would require monthly payments of $1,250 in a 24-month promotional period. That consumes a large chunk of the monthly budget for most families. The results have been staggering, with nearly 19% of borrowers indicating they would be late on promotional period payments in 2021. With an average interest rate hovering at 9% for unsecured loans, the deferred interest and late penalties on a remodeling loan could potentially add thousands of dollars to the cost of your loan. The terms of every lender may be slightly different, but you can be assured that their goal is to make money from your loan.
The best lenders for home remodeling
There are many lenders that offer low interest solutions for remodels that can save you thousands of dollars in interest or deferred fees. We have reviewed most of them and list the top three below, based on borrower scenario.
Lowest rates: LightStream Financing
If you have excellent credit, look no further. LightStream boasts the lowest rates in the industry and a 4.9-star rating from nearly 19,000 customers. >> Apply now
- Up to $100,000 loan amounts
- Immediate approval and funding
- 12-year repayment terms
- No fees, no equity requirements
Military: USAA
A perk for military homeowners is access to low interest loans up to $20,000 from USAA. They now offer online applying to streamline and speed the loan process.
Fair credit: Peerform
With a minimum credit score of 600, Peerform’s lending platform will connect you with a lender that can provide up to $25,000 in financing.
Poor credit: Avant
With a 4.7 star rating on Trustpilot, Avant’s lending is a clear winner for home owners that are in credit rebuilding and need remodel financing of up to $35,000.
As with any home remodel, you should start with a quote for your project before applying for a loan. This will give you the information needed to fill out an accurate loan application. Be sure to review the details of your remodel with your Project Manager to ensure your loan will cover the entire cost of the project, not leaving you with unexpected expenses.
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