Personal Loans

Home Depot Financing And Can’t-Miss Alternatives

Home improvement projects offer an excellent opportunity to give your house a little extra sizzle or a much-needed upgrade while also increasing your home’s overall value. However, while home improvements are often cheaper than buying a new home, they do require some careful financial planning.

Home improvement retailers like The Home Depot offer financing options to help bankroll your next project. This guide to Home Depot financing, credit cards and personal loans can help you decide which financing option is right for your project.

Home Depot financing offers for consumers

Did you know the average cost for a midrange backyard patio is $56,906? If you want to do a major kitchen remodel on an upscale home, be ready to fork over around $131,510. If you don’t have that kind of cash on hand, financing may be the way to go.

Home Depot has two main financing options for consumers. As of the date of publishing, the Consumer Credit Card offers 6-month deferred interest on financing for everyday purchases over $299. The Home Depot Project Loan Card is intended for larger projects, like remodeling a bathroom or a kitchen.

Consumer Credit Card

The Home Depot Consumer Credit Card may be useful for anyone who frequents the store and wants the flexibility to buy now and pay later. Cardholders enjoy one year of hassle-free returns, up to $100 off on a qualifying purchase and Home Depot special financing offers. The Consumer Credit Card also has rotating special offers, like discounts on installed fencing or free paint on select installed sheds and garages.

However, the card does not feature any cash back rewards that other credit cards may offer. There’s also the potential for interest charges to pile up. The Consumer Credit Card offers six months of deferred interest on purchases of $299 or more. Unlike a true 0% APR card, with deferred interest, you pay interest retroactively on any remaining balance after that six-month period ends.

While The Home Depot Consumer Credit Card allows you to finance purchases, it’s important to consider what you need versus something you simply want. Home Depot special financing may be convenient, but the interest charges can quickly stack up. If you use the card, save it for larger purchases that could increase your home’s value.

For example, a minor kitchen remodeling project can increase your home’s resale value by an average of $18,123. What won’t increase your home’s value is financing a new power tool or cool gadget that you might only use once or twice. Save the luxury items for after you’ve paid off your balance and finished the project.

Project Loan

Home Depot offers a Project Loan for one general purpose: major home improvements. The Project Loan is essentially a line of credit with a limit of up to $55,000. After gaining approval, borrowers have six months to buy tools and materials at Home Depot in store or online.

After the 6-month period ends, borrowers must start paying down the loan in fixed installments over 84 months. Project Loans don’t come with any prepayment penalties, so you can make additional payments to save on interest. The fixed 7.99% APR (as of August 27, 2019) can make it a cheaper option than the Consumer Credit Card. It also has long repayment terms and no annual fees.

Keep in mind that a Home Depot Project Loan only allows you to buy from them. You’re out of luck if you need a custom item or plan on making large purchases from other stores. The 6-month spending term can also hinder you if the project takes longer than expected to complete. Make sure Home Depot has everything you need before starting work on the project, and look to pay off the loan as early as possible to avoid hefty interest charges.

Other financing options to consider

Before taking out a loan or applying for a credit card, do your homework and see what else is out there in terms of alternative solutions. Don’t be afraid to shop around, ask questions and compare offers to find the best way to finance your home improvement project.

0% interest credit card

If you’d prefer a flexible credit product for home improvement purchases, a credit card with a 0% introductory period may be a better choice over any of The Home Depot financing offers. However, you typically need good credit to qualify for these promotional offers.

A 0% interest credit card gives you quick, unsecured financing without the threat of racking up interest charges during the typically 12- to 21-month introductory period. Savvy borrowers who keep their balances low also can take advantage of reward programs like cash back or miles.

Take the time to shop around for the best available credit card offers, and look closely at APR, minimum payments, annual fees and additional perks. Some rewards cards provide cash back on other stores that sell home improvement tools and materials. Others may even offer extras like advanced access to concerts and event tickets or rental car insurance.

Pros

  • Flexible credit to finance home improvement purchases
  • Low introductory interest rates, if you have good enough credit to qualify

Cons

  • Potentially high interest rates after 0% promo period ends
  • May need good/excellent credit score to get approved for card

Personal loan

A personal loan could make the most sense depending on the type of home improvements you want to make and the interest rate you can get. Depending on your credit score, you could be looking at APRs ranging from 7.25% to 136.50%. A personal loan with a low interest rate could be a solid option for your home improvement project, especially if you’re able to pay it off fairly quickly.

Personal loans are typically unsecured loans, which means, unlike a home equity loan or HELOC, your house isn’t at risk if you’re unable to make payments. Unsecured loans usually come with higher interest rates due to the lender taking on more risk. Defaulting on an unsecured loan can negatively affect your credit score and history and make it difficult to secure future financing.

Because home improvement projects can increase the value of your home, it’s important to weigh the project’s potential return on investment versus the amount of interest you’ll pay on the loan. Replacing a garage door costs an average of $3,611 and, on average, increases the home’s resale value by $3,520. However, if you take out a 3-year personal loan with a 20% fixed APR, you’ll pay $1,220 over the course of the loan term.

Pros

  • Can obtain with poor credit
  • May be able to get up to $40,000

Cons

  • Potentially higher interest rates if you have poor credit
  • May require origination fees

Home equity loan

A home equity loan is money that you borrow against the value of your home for major expenses like updating your kitchen or getting new carpet throughout your house. You can calculate your home equity by taking your home’s current value and subtracting what you still owe on the mortgage. The total is your home equity.

Typically, lenders only allow you to borrow up to 80% to 90% of your home’s value. The loan amount is also dependent on your loan-to-value ratio, which you can calculate by dividing the amount you still owe on the home by its total value.

Similar to a personal loan, borrowers receive all of the money upfront. After paying closing costs and fees (usually 2% to 5% of the loan amount), you’re then responsible for repaying the principal and interest over a set period of time, usually five to 15 years.

Home equity loans are secured because they’re linked to your property. This means it’s safer for the banks to loan you money, translating to usually lower, fixed interest rates and typically higher borrowing amounts. However, because your house is collateral, you could lose your property if you miss too many payments.

Pros

  • Lower fees and closing costs than most refinance loans
  • Lower interest rates than a credit card

Cons

  • Nonpayment could lead to home foreclosure
  • Need at least 680 credit score

Home equity line of credit

A home equity line of credit (HELOC) is also a secured loan based on your home’s value. It differs from a home equity lump sum loan in that it’s more like a credit card. You receive an approved borrowing limit, can buy items within that limit then pay it off and borrow again.

The borrowing limit is usually up to 85% of the value of your home minus the amount you still owe. Lenders also typically check your credit score and history, employment background, income and monthly debts.

A HELOC comes with a variable interest rate that could rise or fall over the life of the loan. This makes payment amounts less predictable and budgeting a bit more challenging.  Some banks will offer an introductory phase for a HELOC with a low teaser interest rate, but the amount will increase after six to 12 months.

Pros

  • Similar flexibility to a credit card
  • Lower interest rate than credit card

Cons

  • Less predictable payments
  • Need at least 680 credit score

Are Home Depot’s financing options worth it?

A Home Depot Project Loan or Consumer Credit Card could be the way to go if you want to spruce up your house but don’t have the cash to do so at the moment. Be mindful of the lack of cash back or reward bonuses for the card and the limited time to buy materials before you must begin paying off the Project Loan. If you have the equity, a home equity loan or HELOC could help keep more money in your pocket, though it would put your home at risk if you don’t make repayments.

It’s one thing to replace a busted water heater or freshen up your kitchen before putting it on the market. It’s a whole other thing to finance purchases for a new power tool set or a vanity project you’re not prepared to see through to the end. If you can, save up for those types of purchases and save financing for when you need it the most.

 

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