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Contractor financing vs. personal loan: which is better for your project?
Short answer: Contractor financing can be cheaper if it offers a true 0% APR you'll pay off in time. A personal loan is better when you want a fixed rate, the freedom to choose any contractor, and to compare several lenders first. Watch for deferred interest, which can charge all the interest back if you miss the deadline.
CLO is not a lender. We may be paid by partners when you're matched or take a loan. How we make money
| Contractor financing | Personal loan | |
|---|---|---|
| Who you borrow from | A lender your contractor partners with | A lender you choose |
| Who gets the money | Usually the contractor | You, by deposit to your bank |
| Rates | Promotional offers possible, then a standard rate | Fixed APR for the whole loan |
| Deferred interest risk | Common on promo plans | None |
| Shopping around | One lender, the contractor's | Compare several lenders with one soft pull |
| Use of funds | That contractor's job | Any contractor, materials or related costs |
| If you switch contractors | Financing usually doesn't move | The money is already yours |
What is deferred interest?
Some promotional plans charge no interest only if you pay the full balance by the end of the promo period. If any balance remains, interest from the purchase date can be added. A true 0% APR plan doesn't do this. Ask which one you're being offered.
When contractor financing makes sense
- The offer is a true 0% APR, not deferred interest
- You can pay the full balance before the promo ends
- You've already chosen the contractor and compared quotes
When a personal loan makes sense
- You want one fixed payment you can plan around
- You want to compare contractors without being tied to one lender
- The project includes materials or work from more than one company
Checking your rate uses a soft credit pull. Accepting an offer and finishing a lender's application may lead to a hard inquiry.
Contractor financing questions
Is contractor financing a personal loan?
Often, yes. Many contractor programs are personal loans or credit lines from a partner lender, paid to the contractor.
Does contractor financing affect my credit?
Applying usually involves a credit check. Ask whether it's a soft or hard pull before you apply.
Can I pay off a personal loan early?
Most lenders in our network don't charge a prepayment penalty. Check your offer's terms.
Can I use both?
Yes, but borrowing twice raises your total debt and payments. Compare the total cost of each before deciding.