What can homeowners do if products or services are needed, or desired, for their home, but cash or credit cards funds are not available? Financing the purchase over a period of time enables the homeowner to fit a small monthly payment into their overall budget enabling them to address these enhancements to their home. Many home improvement product dealers and contractors, will offer financing as an option for their customers to pay for their products. Here are some key guidelines that homeowners can look for when considering financing offered by a dealer or contractor.
- Avoid Revolving Credit – Many home improvement financing offers are disguised as revolving credit or as a credit card account. Major home improvement purchases are for all intents and purposes a “one time” transaction, meaning that there are not likely to be additional future purchases unlike, for example, a department store where multiple purchases over time are likely to occur. Homeowners should avoid credit card/revolving credit for these purchases since full disclosure of the loan terms are not required. Instead look for installment or term financing, which discloses and outlines the overall terms of the loan in greater detail.
- Closely Review the Truth-in-Lending Disclosures – As we mentioned, installment financing will provide the specific terms of the loan so be sure that the financing agreement provides a Truth-in-Lending disclosure, required by law, which details the interest rate, term of the loan and monthly payment.
- Simple Interest Calculation – Interest should be calculated on a simple interest basis. This means that interest accrues each day based on the principal balance outstanding. This benefits the borrower who wants to pay additional principal during the term of the loan which will result in reducing the overall interest paid.
- No Prepayment Penalties – The loan agreement should contain language that indicates that there are no prepayment penalties if the borrower chooses to pay off the loan prior to maturity.
- Get a Copy of the Financing Agreement – The dealer or contractor should provide the homeowner a copy of the signed loan agreement. Keep it for your records.
- Be Sure Monthly Payment Fits Budget – Finally, homeowners should have a very clear idea of what their monthly income is and what their monthly expenses are. Make sure that the monthly payment for the loan fits within that budget.
By following these tips homeowners can be assured of finding the best financing solution for their home improvement product purchase. Scott Heritage is the President of Pinnacle Finance. Pinnacle provides financing solutions to dealers and contractors that sell home improvement products and services.
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