Contractor Financing Checklist: What to Ask Before You Sign

Two hypothetical quotes for the same job: $9,200 if you pay as the work progresses, or $10,000 with “0% financing for 18 months.” The financed version is $555.56 a month and charges no interest. It also costs $800 more. Treat that $800 as the price of the financing and the deal works out to an estimated APR of about 10.72%. The paperwork may still say 0%.

That doesn’t make the financing bad. It may still be cheaper than your other options. But it shows why contractor financing deserves the same scrutiny as any loan, and why the questions below are worth asking before anything gets signed.

Before financing comes up: the job itself

Financing questions only make sense once you trust the contractor and the price. The FTC’s advice on hiring a contractor comes down to a few habits:

• Get more than one written bid for the same scope of work, so you know what the job should cost before financing enters the picture.
• Check licensing. Many states and localities require contractors to be licensed, bonded or both; your state or county licensing office or building department can confirm it.
• Ask for proof of insurance, including liability coverage and workers’ compensation where required.
• Get a written contract with the contractor’s name, address, phone and license number, the scope of work and materials, start and finish dates, the payment schedule, and who pulls the permits.
• Look up complaints with your state attorney general or local consumer protection office.

The financing checklist

Ask these questions, and get the answers in writing. Most of them are answered in the credit agreement and the Truth in Lending disclosure, which you’re entitled to see before you sign.

Who you’re actually borrowing from

• Who is the lender? Contractors usually arrange financing through a bank, finance company or credit card issuer. Get the lender’s name and look it up. Our guide to checking a lender’s license shows how.
• Is it a loan or a credit card account? Some programs open a store-style revolving card; others are installment loans with a fixed term. They behave very differently after a promotion ends.
• Does the contractor earn a fee or commission from the lender, or pay one to offer the promotion? Promotional financing often costs the contractor something, and that cost can show up in your price.

The promotion and the rate

• Is it true 0% or deferred interest? “No interest if paid in full” means deferred interest: interest accrues from day one and is all charged if any balance remains when the promo ends. True 0% charges interest only on what’s left after the promo.
• When exactly does the promo end, and what is the rate afterward? Write the date on your calendar.
• What monthly payment clears the balance in time? The required minimum is often lower than that. On a $10,000 balance and an 18-month promo, it’s $555.56.
• What’s the APR on the disclosure, and what is the cash price versus the financed price? The APR explainer shows how a fee or price markup changes the true cost.
• Is there a prepayment penalty or any fee for paying early?

What’s being financed

• Does the amount match the contract price, or are there add-ons such as extended warranties, service plans or insurance? You can usually decline those.
• Are origination, application or document fees included in the amount financed?
• Would a smaller loan work if you put some cash toward the job?

Your home and the paperwork

• Does the financing put a lien or security interest on your home? If so, your house is collateral and falling behind could lead to foreclosure. It also triggers a federal right to cancel, covered below.
• When does the lender pay the contractor? Ideally in stages or at completion. Some programs ask you to sign a completion certificate; don’t sign one until the work is actually finished.
• Are there blank spaces in anything you’re asked to sign? Don’t sign until they’re filled in or crossed out.
• Do you get copies of everything at signing, including the credit agreement and any cancellation notices?

Your rights to cancel within three days

Two different federal rules can give you three business days to back out. Which one applies, if either, depends on where you signed and whether your home secures the deal. Some states add their own, longer protections.

Credit secured by your home: Truth in Lending rescission

Under the Truth in Lending Act, when you take on credit that gives the lender a security interest in your principal dwelling, other than a loan to buy the home, you generally have a right to rescind. That can include home improvement financing that takes a lien on the house. You can cancel in writing until midnight of the third business day after the last of three things: signing, receiving the required disclosures, and receiving the rescission notice. Business days here include Saturdays but not Sundays or federal holidays. If the required notice or disclosures were never given, the right can last up to three years.

Sales made at your home: the FTC Cooling-Off Rule

The FTC’s Cooling-Off Rule covers many sales made at your home or at a temporary location, such as a booth at a home show. It applies to sales of $25 or more at your home and $130 or more at temporary locations. You have until midnight of the third business day after the sale to cancel, and the seller must tell you about this right and give you cancellation forms. After you cancel, the seller has 10 days to refund your money and cancel any check or contract.

Paying the contractor in stages

Cash or financed, the way money reaches the contractor is one of your best protections.

1. Keep the deposit small

   Some states limit how much a contractor can require up front. Large advance payments for “materials” are a common feature of home improvement scams.

2. Tie payments to finished work

   Link each payment to a visible milestone, such as framing done or inspection passed, so payments slow down if the work does.

3. Hold back the final payment

   Pay the last installment only after a final walk-through, any required inspections and cleanup.

4. Avoid cash; keep records

   Pay by check or card so there’s a record, and keep every receipt and change order.

5. Ask about lien waivers

   In many states, an unpaid subcontractor or supplier can file a lien against your home even if you paid the main contractor. Asking for signed lien waivers with each payment helps. Rules vary by state.

Red flags

• Financing comes up before the scope and price are settled. The monthly payment becomes the selling point, not the job.
• Pressure to sign today. “This price expires tonight” leaves no time to compare bids or read the agreement.
• You can’t get the lender’s name. Or the paperwork names a lender you can’t find.
• A lien on your home for a modest job. Small repairs rarely need to be secured by your house.
• You’re asked to sign a completion certificate early, or documents with blank spaces.
• No mention of your right to cancel on a sale made at your door or on credit secured by your home.
• Payment in full, or in cash, before work starts.
• “Leftover materials” from a job down the street, or an uninvited visit after a storm.

For more on terms that make a loan dangerous, see predatory loan red flags. And if you’re still deciding how to pay at all, paying for home repairs compares contractor financing with personal loans, home equity and assistance programs.

If you do one thing: ask for the cash price and the financed price on the same page. The difference between them, plus whatever the promo turns into later, is what the financing really costs.