People looking to start a home improvement project often wonder which are the best sources of financing. Many people turn to banks for a loan, however, most banks require you to have equity built up in your house in order to approve you for a loan. Plus, if your home improvement project is fairly small, the hassle of applying for a bank loan and the high fees typically charged for these loans may not be worth it.
For this reason, many people fall for the temptation to use a home improvement credit card to take out a short-term loan for purchasing the materials needed for their project. All the major hardware stores offer their own private label credit cards; for example, you can have your pick between a Home Depot Credit Card, the Menards Big Card, Lowes Credit Card, Lowes Project Card, and more.
However, in a time where the uncertainties linked to credit card debt have never been higher, is financing a home improvement project with a credit card a good idea? The answer is, it depends. Here is an overview of the pros and cons of hardware store credit cards.
Pros:
* 0% APR Financing Offers. Many of these cards offer a 0% APR introductory period for 6 to 12 months, essentially giving you an interest free loan. This is a great benefit, which can quickly add up if you are undertaking a large home improvement project. However, as we will discuss below, there is a catch.
* Special Offers and Rebates for Cardholders. Many hardware store credit cards offer special promotions to card holders, or e.g. a 2% rebate on purchases made with the card in the store.
Cons:
* 0% APR Financing Offers. That 0% APR may not mean zero interest. For most home improvement store credit card offers, the 0% interest applies only if the purchase is completely paid off before the 0% APR financing period expires. This includes “No Payments, No Interest” offers. If purchases aren’t paid of in full before the end of the promotional period, the standard APR will apply retroactively to all purchases made since you opened the account. Most hardware store credit cards come with a high purchase APR, so this could cost you a lot.
* One strike and your 0%APR is out. Not paying off your purchase before the expiration of the financing offer may not be the only thing that trigger the retroactive interest. For most hardware store cards, the standard APR will also be applied retroactively if you default on the credit card agreement, e.g. by paying late one month.
* High purchase APR. The average purchase APR on Home Depot credit cards, Lowes credit cards, and Menards credit cards are considerably higher than the average for regular credit cards. A purchase APR for a home improvement credit card issued by hardware stores starts at around 17.99% and can go as high as 26.99%.
* Highest default penalty rates in the industry. If you pay your credit card bill late, the penalty default rate applied to your account can be punitive. One consumer reports being penalized with a 45% default APR on her Menards credit card for making a late payment.
The bottom line: While private-label credit cards issued by major home improvement stores like Home Depot, Menards, and Lowes may seem like a convenient way of financing your renovation project, you could easily end up paying through your nose for the convenience.
Instead, consider looking into other types of home improvement credit cards with lower interest and better terms. If you time it right, the Discover More card offers one of the best credit card options for home improvement projects. The card comes with a low purchase APR and it gives a 5% cash back on home-related purchases three months a year, typically in the top home improvement season from April to June.
