Homeowners are increasingly using cards to renovate their homes

Interest-free promotions are a big draw for people who need financing

Kelly Dilworth
Personal finance writer
Specializing in new trends in credit

Homeowners are increasingly using cards to renovate their homes

Homeowners looking to make over their backyards or revamp their dated kitchens have a wide variety of financing options to choose from. But according to new research from Houzz and Synchrony Bank, a growing number of home renovators are bypassing traditional lending options – such as personal loans or home equity lines of credit – and are instead turning to credit cards to finance home improvements. 

Credit card holders charged roughly $141 billion worth of home improvement purchases to their cards last year, Houzz and Synchrony Bank found – up from $84 billion in 2011.  

Young homeowners between the ages of 25 and 34 were especially likely to tap into their cards – even for big-ticket purchases. Researchers surveyed more than 10,000 U.S. homeowners and found that as many as 41 percent of millennials used credit cards to fund at least some or all of their home improvement projects. Just 30 percent of renovators over the age of 50, by contrast, funded their projects with plastic.  

Cards’ no-interest promotions can help fund pricey projects 

According to the survey, many homeowners opted for credit cards because they felt the cards offered them a better deal. For example, 74 percent of credit card users who planned to pay off their purchases over time took advantage of a low interest or 0 percent financing promotion. Meanwhile, 44 percent pointed to the cost savings they received from the promotions as a key reason for why they opted for a card.  

Credit cards with promotional financing options may also help some renovators justify purchases that they can’t otherwise afford. According to a separate survey by Synchrony Bank, more than 33 percent of home renovators admitted they would have skipped a purchase altogether if they hadn’t been able to finance it with a promotion. 

“Aging housing stock, low inventory of homes for sale and major demographic shifts are driving up demand for home improvements, so it is natural for consumers to look for advantageous financing methods,” said Houzz’s Nino Sitchinava in a news release. “Based on our study, credit cards appear to be a competitive financing method for a large share of renovating homeowners, likely explaining the recent acceleration in credit usage.” 

Cardholders aren’t just relying on deferred interest store cards to upgrade their properties. The survey found home renovators are also increasingly turning to general market credit cards – many of which offer safer interest-free promotions. 

Deferred interest cards have come under fire from consumer advocates for forcing cardholders to pay interest on an entire purchase if they fail to repay their card’s balance by the end of the promotion. That can add up quickly if they charged a major purchase. 

Zero interest credit cards, by contrast, only charge interest on the remaining balance after a promotional period ends; so cardholders don’t have to worry as much about underestimating how long it will take them to clear a balance. 

See related: Rising rates, bigger card balances cripple millennials' home buying ability 

Alternative options abound, but don’t forget to check rates

If you’re getting ready to finance a home renovation, you, too, may be able to get a better deal by financing some of your purchases on an interest-free credit card. As long as you can afford to pay off your balance within the interest free period, you should be able to save a substantial amount of money on interest. Depending on your card, you may also be able to rack up an impressive number of rewards points.  

However, credit cards aren’t your only option these days for securing low interest or 0 interest financing. 

A growing number of home improvement stores now partner with point-of-sale lenders, such as Bread and Affirm, on installment loans that you can qualify for instantly. 

For example, the home renovation marketplace BuildDirect recently announced it’s partnering with the alternative lender Affirm on installment loans for U.S. borrowers who need heavy duty supplies, such as flooring or lumber. Meanwhile, niche retailers such as Custom Service Hardware and Prime Cabinetry offer installment loans through Bread. 

 

Many of the retailers that partner with point-of-sale lenders offer similar interest-free options to what you’ll find on a credit card. But as with store credit cards, the promotions are only available at select stores and so aren’t as widely available. 

Some point-of-sale loans also offer significantly lower rates than what you’ll find on a card. For example, the point-of-sale lender GreenSky offers rates on home improvement loans as low as 4.99 percent. 

Be careful, though, if your credit is less-than-perfect. GreenSky’s maximum rate is just as high as the maximum rates charged by many credit cards: 23.99 percent. Other point-of-sale lenders also offer high maximum interest rates. APRs at Affirm, for example, can run anywhere from 10 to 30 percent. At Bread, they can run as high as 29.99 percent.  

Before you settle on a loan, look around to see if you can find a better deal. As long as you can afford to pay off your purchases in a reasonable period, a credit card or a point-of-sale loan that offers interest-free financing could be your most cost-effective option.  


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Updated: 11-21-2018