FICO scores and promotional home improvement loans

Here’s a little secret other home improvement lending companies don’t want you to know.  While some lenders grew throughout COVID-19, many lenders that either stopped writing loans or have “tightened” their credit policy.  This means that fewer and fewer customers with decent credit are being approved or “risk adjusted” which means higher interest rates.  As credit policies of big companies like GreenSky, Wells Fargo and Synchrony Bank have tightened – more and more people that want to apply for home improvement loans are getting denied.  So if you have great credit, you may qualify for a loan.

The second part of the secret is that most of these lenders have convinced contractors to offer “promotional” programs with options like 0%, or No Payments, or deferred payments.  They’ve convinced contractors that consumers will only purchase if they offer these promos.  It’s just not true plus there are few problems with these promos.  First, as credit has tightened, people that could normally qualify, can’t so only customers with high FICO (750+) scores will qualify.  There are other problems with these programs.  First, there are high dealer fees for these programs and with higher fees usually mean higher cost to the consumer.  Someone has to pay and even though the contract technically pays the bill – they have to pass on all or part of the costs.

For consumers, there are other reasons we don’t like these promos.  When you sign up for these loans the consumer receives a credit card.  Just what you need…another card.  Worse, these cards have up to 30% interest rates and if you miss a payment you will be hit with extra fees, acceleration payments, etc.   In addition, these companies make money when you use the cards.

For contractors, it’s a double-edged sword. Contractors have been trained to believe that their customers will only make a home improvement purchase only if they offer a promotion program but it’s not true.  First, only high FICO clients (+750) will qualify, and in most cases, these customers don’t need the financing.  So these programs don’t really help the contractor grow their business or help customers that really need it.  Second, as mentioned, these promotional programs can add over 10% to the project cost so contractors are just taking money from themselves.

PowerPay takes a much simpler approach.  First, we lend to customers from 600+ FICO.  We don’t offer credit card promotional products and we don’t charge fees to the contractors so they can keep their project prices competitive.  While we do offer risk-adjusted loans, our current maximum rate is 14.99%.  Best of all, we offer terms of up to 15 years which means the lowest possible payment for any home improvement project with no prepayment penalties.  This allows you pay off your loan whenever you want with $0 Fees.  We have found that customers that use the longest terms tend to make better investment decisions helping them increase the value of their homes.  This is a win-win for both the contractor and the consumer!