Author Topic: Best way to payoff home renovation loan  (Read 601 times)

fdubz

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Best way to payoff home renovation loan
« on: August 09, 2018, 07:31:25 AM »
In November, we are doing a big home renovation which we have saved for for years. We do have the full amount already saved.
The construction company offers a 1 year, no interest loan for their services.  We are purchasing materials on our own (which saves a ton), so this loan would only be for labor, a total of $21,300.  Materials will be no more than $15,000.  Probably closer to $10k, but we've budgeted for $15k just in case.

My question is twofold:
1. In repaying the one year, 0% interest loan, would we be better off to make regular payments? Put our savings to work for another year (high yield savings account), then pay it off right before it is due?  (Defaulting is not an option, just trying to maximize this unexpected opportunity)

2. This got me thinking that we should explore a 0% APR for 15-18 payments, reward-earning, new credit card for the materials.  Any referral codes/recommendations on such a card?

Also, does anyone see a huge problem with using these types of tools?  I don't really understand why the company offers such loans.  Granted the interest rate is ridiculous if you don't pay the balance off in 1 year, so maybe they make money off of some people.
Thanks in advance for your help!

ETA: We have no debt other than our mortgage and the high end of the "Excellent" range for credit.
« Last Edit: August 09, 2018, 07:46:46 AM by fdubz »

onlykelsey

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Re: Best way to payoff home renovation loan
« Reply #1 on: August 09, 2018, 07:42:31 AM »
I'm sure someone will want to face punch you for paying someone to do home renovations at all, but in response to your actual questions:

My question is twofold:
1. In repaying the one year, 0% interest loan, would we be better off to make regular payments? Put our savings to work for another year (high yield savings account), then pay it off right before it is due?  (Defaulting is not an option, just trying to maximize this unexpected opportunity)
This makes sense to me.  I'd pay the minimum and then pay it off in the tenth month, though, because these companies are tricky.  Read the fine print about what fees are and how long it takes them to acknowledge payment.  I'd sleep better making sure it was fully paid well before the one-year mark. 

I don't know what high-yield savings account is paying you well enough to make this worth your while, though.  I thought 1% was good nowadays.

2. This got me thinking that we should explore a 0% APR for 15-18 payments, reward-earning, new credit card for the materials.  Any referral codes/recommendations on such a card?

Also, does anyone see a huge problem with using these types of tools?  I don't really understand why the company offers such loans.  Granted the interest rate is ridiculous if you don't pay the balance off in 1 year, so maybe they make money off of some people.
Thanks in advance for your help!
I'm not sure what your credit scores are like or what your other debts are, but I'm not sure I'd want two hard pulls on my credit in the same month.  Depending on the order they show up at the bureau, you might not be approved for the best loan terms because you had a recent pull, and if you need credit in the near future that could hurt you.

I think the lending companies make money off of defaulters, and also off of various fees and footfaults, so read your docs carefully.  If you're doing it just to save 1% in a savings account, it might not be worth the headache or credit score hit.

Fishindude

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Re: Best way to payoff home renovation loan
« Reply #2 on: August 09, 2018, 09:57:15 AM »
I see a couple red flags.
Almost everywhere decent building contractors have pretty much all of the work they want and need.   So why do they need to offer 1 year at 0% when they could easily be paid in full 30 days from completion?
Most decent contractors would walk away from a deal where the owner wanted to buy all of the materials and cut them out of the markup margin.

I'd be very careful going ahead with this plan.

 

frugaliknowit

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Re: Best way to payoff home renovation loan
« Reply #3 on: August 09, 2018, 10:00:00 AM »
I would ask them for a cash discount:)

The fact that they offer 0% financing suggests "not so tight" margins.

If they knock off 5%, it's much easier than playing the "borrow for 0%, then make payments out of savings game..."
« Last Edit: August 09, 2018, 10:02:17 AM by frugaliknowit »