What’s a No-No loan? A No-No loan is also known as a deferred interest credit card loan. These have become very popular in the home improvement space recently. Unfortunately, the reason they are so popular is due to a lack of understanding. TRUE 0% LOANS DO NOT EXIST. Someone is paying for it, and 99% of the time, that’s the misinformed customer. We don’t offer these types of loans for a few reasons. Studies show that most customers that qualify for these loans can afford to pay cash for home improvements. So by offering these loans, you are paying on average 10% in bank fees, and either eating the cost of the loan or more likely, passing it on to your customer, who could have paid cash to begin with. This does not make a lot of sense.
Helping the Right Customers. The main reason to offer financing is to help the customers that cannot afford to pay cash for a home improvement to help you grow your business. Deferred Interest credit card promotions don’t really help the customers that need it because the payments are much higher and if they are late (by as little as 1 day) or miss a payment the customer is hit with heavy penalties and an acceleration of the interest payments. It’s a credit card and rates can be as high as 30%.
Doing the Right Thing. We don’t believe in these loans. We believe in offering a fair, low-interest rate with 5, 10, and 15-year options so your customer can get the lowest payment possible, and they can afford the best home improvement you can offer. A fair deal, with no fees, ensures everyone is happy. Here’s an example of a $10,000 project:
No-No Loan – 24/month No/No = $417/mo vs. POWERpay – 180/month 8.99% = $101/mo
The Hidden Cost. There are some hidden costs that you should know about. First, banks typically charge your contractor 10% to offer these loans. That means your contractor either has to increase the cost of your project by 10% or more, which makes them less competitive, or they have to eat the cost. Here’s the really crazy part, it’s actually illegal to tell the customer that they have to charge 10-20% more for the project to offer that “0%” loan!
Hidden Costs Part 2. Typical 0% loans are offered in the form of a credit card with maximum interest rates of 30%. If your customer misses a payment or is late, there are heavy penalties. This is where the bank makes all of its money – charges to your customers. Wait, there’s more. When the customer makes their first payment, there are card swipe fees of 3% or more which the contractor has to eat or increase the cost of the job. So when looking behind the curtain, the 0% loan is much worse than it sounds.
Reality Check. Since most No-No loan buyers could afford to pay cash because they have great credit and disposable cash they are not really helping that customer. It’s just a convenience. The customers that need real help, may not have pristine credit or disposable cash but still, need and deserve quality home improvements. As a contractor, trying to sell them on a $10,000 project, a $417 monthly payment is a lot harder to pitch than a $101 monthly payment. People know what they can afford, and that differential may allow the homeowner to spend a little more on higher-quality materials and equipment. The best news is that in a POWERpay loan, there are no fees.
The Bottom Line. In most cases, consumers will opt for the lowest payment possible. This is good for multiple reasons. First, it eliminates the back and forth over price. When a contractor has to compete on price everyone loses. The homeowner will end up with an inferior project because the contractor had to cut corners to make a profit and nobody is happy. When a consumer purchases based on an affordable monthly price it gives room for the contractor to consider upgrade options. When consumers are offered a good, better, best option, and a low monthly payment allows for the homeowner to purchase what they really want and not settle.