Financing a project is a separate decision from choosing a contractor, and it gets bundled together because the contractor is standing in your living room with a payment plan when you are deciding.
That bundling is where money gets lost. The monthly payment is presented, the total cost of credit is not, and a project that would have been financed at one rate through a bank gets financed at a considerably higher one because it was convenient.
The Options
Home equity loan. A fixed rate second mortgage, drawn as a lump sum, repaid over a set term. Generally the lowest rates available for home improvement because your house secures the loan. In mid 2026 fixed home equity loan rates have commonly been quoted in the range of roughly seven to nine percent for well qualified borrowers, though your rate depends on credit, equity, and lender. Requires appraisal or valuation, closing costs in some cases, and typically two to six weeks to fund.
HELOC. A revolving line secured by the house, usually variable rate, drawn as needed during a draw period. Useful for phased projects or where the final cost is uncertain. Rates have recently been quoted somewhat below fixed home equity loans in many cases, with the important difference that the rate can move.
Cash out refinance. Replaces the first mortgage with a larger one. Rarely attractive when your existing mortgage rate is below current market rates, which describes a large share of homeowners, because you give up the old rate on the entire balance to access equity.
Contractor financing. Arranged through the contractor, usually via a third party lender. Fast, often approved same day, frequently requires no equity, and commonly offers a promotional zero interest period. Rates after the promotional period are typically much higher than secured borrowing, often quoted in the range of ten to thirty percent depending on the program and credit.
Unsecured personal loan from a bank, credit union, or online lender. Fixed rate, no collateral, faster than equity borrowing and slower than contractor financing. Rates land between the two.
PACE, where available, finances qualifying improvements through an assessment repaid on the property tax bill. Availability is limited to specific states and municipalities. It attaches to the property rather than to you, which has real consequences at sale or refinance because some mortgage lenders will require it paid off. Read the terms carefully.
Cash. Worth stating explicitly, because paying interest to preserve a savings balance earning less than the interest rate is a net loss.
The Promotional Period Question
Zero percent for twelve or eighteen months is a genuinely good offer if you pay it off within the promotional window. The question is what happens if you do not.
Two structures exist and they are very different. Deferred interest means that if any balance remains at the end of the promotional period, interest is charged retroactively on the entire original amount from day one. Waived interest means interest begins only on the remaining balance going forward.
Ask which one you are being offered, in writing. The difference on a $30,000 project can be thousands of dollars, and the offer looks identical in the sales presentation either way.
If you take a promotional offer, calculate the payment required to clear the balance before it expires, not the minimum payment, and set that up as an automatic transfer.
Comparing Honestly
Compare APR, not monthly payment. A longer term produces a lower payment and a higher total cost, and a payment presented without a term is not information.
Ask for four numbers on every option:
- The APR
- The term
- The total of payments over the life of the loan
- All fees, including origination, appraisal, closing, and any prepayment penalty
Then ask the contractor one more question: is the price different if I pay cash or arrange my own financing? Contractors pay a fee to the financing company, often a meaningful percentage, and that cost is usually built into the project price. Sometimes there is room to negotiate when the financing is not being used. Sometimes there is not. It is worth asking.
When Each One Fits
Contractor financing fits an urgent replacement, a household without equity or with credit that makes bank approval difficult, or a borrower who will genuinely clear a promotional balance in time. A failed furnace in January is not a situation where waiting four weeks for a HELOC is realistic.
Home equity borrowing fits a planned project of meaningful size where you have time and equity. The rate difference over a multi year term is substantial.
A HELOC specifically fits phased work, or a project where the scope may grow, which is common on older houses. See sequencing multiple home projects in one year.
A personal loan fits a mid sized project where you lack equity but have good credit and some time.
Current conditions and how they have moved are covered in home equity rates eased in 2026 as project costs rose.
Before You Sign Anything
Get financing approval before the sales visit if you can. Walking in with your own approved terms changes the conversation and removes the pressure that comes from needing the contractor's lender.
Read what the financing is secured by. Some contractor financing programs place a lien on the property, which makes it secured borrowing at unsecured rates. Ask directly.
Never finance a deposit larger than the project justifies. Many states cap the deposit a contractor may collect, often at a percentage of contract value or a fixed amount. Check your state's rule.
Watch for financing tied to a sales pressure structure, meaning a price valid only today, a rate available only if you sign now, or a discount contingent on using their lender. Agreements signed at your home may carry a cancellation right, described in the three day cancellation rule and in home remodel sales, and knowing that before the visit is worth more than knowing it after.
Separate the two decisions. Choose the contractor on scope, references, and price, using verifying a contractor's license, insurance, and references and what a written scope of work should cover. Then choose the financing on APR and total cost. The two questions have different right answers and they deserve to be asked separately.
Interest on borrowing secured by your home and used to improve it may be deductible in some circumstances. Rules change and they depend on your situation, so confirm with a tax professional rather than with a contractor or a lender's marketing material.
If you are planning a project and want to compare quotes first, tell us what you are working on and we will connect you with contractors serving your area. It is free to use, with no obligation to hire.