Homeowners today have more options to pay for their home improvements than ever. As a result, they’re increasingly looking beyond traditional home equity loans and HELOCs to financing alternatives that are faster, smarter, or offer other advantages.

Mosaic is part of this revolution in home improvement financing, with a simple, user-friendly platform that allows contractors to offer homeowners access to loans with instant pre-qualification decisions for select renovations. However, a new survey indicates that another method of financing is gaining steam these days: credit cards. Let’s dig into this trend and compare the two.

Who’s Paying for Renovations With Credit Cards - and Why

A new survey by Houzz has revealed a major rise in the use of credit cards for renovations. In 2017, homeowners charged $141 billion in home improvement products and services, a 69% increase from 2011. All told, nearly a third of home improvements were paid for at least in part with credit cards.

While those topline findings are striking, there’s a lot more to dig into in this survey. Here are a few trends that stood out:

  • DIY vs Pro: About 80% of this credit card spending was at home improvement retailers, while just 20% was for home improvement service providers like pro contractors. This makes sense, since service providers are usually called in for bigger jobs - and a contractor will probably be able to suggest other financing options.

  • The Millennial Choice: While homeowners across all age groups are contributing to this trend, 41% of millennials (age 25 to 34) used credit cards to finance home improvements, the largest share of any age group. While the survey doesn’t delve into the reasons why, it’s not hard to guess at least one - as we discussed on our blog comparing Mosaic loans to home equity financing, younger homeowners have typically paid off less of their mortgage and thus have less access to the traditional home equity financing stream.

  • Speed More Important Than Cost: Home improvement purchases made on standard interest rate credit cards faced average interest rates of 26% to 27%, significantly higher than typical home equity-secured financing options as well as personal loans in many circumstances (depending on the lender and the borrower’s financial situation). The #1 reason for this choice was quick access to funds (38%), followed closely by ease of use (35%).

  • “No-Interest” Promotions: Promotional no-interest financing for purchases paid back within a certain time period are playing a big part in driving this trend, accounting for 41% of unrestricted credit card (i.e. not store-specific card) purchases by those planning to pay over time (>2 months). However, if homeowners fail to pay off those purchases in time, they face high interest rates ranging from an average of 49% to 55%.

Overall, it’s safe to say that while credit cards are clearly on the rise, they aren’t always necessarily the best solution. If you’re doing a spontaneous weekend DIY project and are confident you can quickly pay off that promotional no-interest offer from Home Depot (for example), then credit card financing makes plenty of sense.  

However, if you’re hiring someone to replace your HVAC system and need to pay for it over a couple of years, there are probably better options out there than paying 27% interest on a standard credit card - or, even worse, potentially over 50% interest if unforeseen circumstances force you to fall behind on paying back one of those promotional offers.

Comparison With Home Improvement Loans Through Mosaic

That’s where the home improvement loans through Mosaic comes in. Our industry-leading solar loan platform has financed over $2 billion in home solar installations, and now we’re enabling contractors to offer access to loans for home improvement projects like roofing, doors, windows, HVAC, and more.

By providing access to renovation financing through Mosaic’s platform, our contractor partners help homeowners avoid some of the pitfalls of credit cards while offering similar advantages:

  • Lower Interest Rates: You’ve saved up a long time for your house - why pile on expensive credit card debt in the process of turning it into your home? Loan financing through Mosaic currently features APRs from 4.99% to 17.24%, significantly lower than the 26-27% average for standard credit card purchases cited by Houzz. Similarly, our deferred interest financing options have much lower interest rates than the 49%-55% average for no-interest credit cards in the event that the purchase is not paid off by the end of the promotional period.

  • Instant Pre-Qualification Decisions: We understand the desire for fast financing that is driving the rise of credit cards. After going through the long process of applying for a traditional mortgage and closing on a new home, who wants to go through another long application process for a HELOC? That’s why our mobile app-enabled loan platform  provides homeowners with instant pre-qualification decisions, so contractors can close on renovation projects with financing secured on the spot.

  • Flexible Payment Schedule: The Houzz survey shows a wide range of planned payment schedules for homeowners using credit cards, with the majority planning to repay between 2 months and 2 years. Again, we get it: when it comes to your finances, flexibility is a huge advantage. Financing through Mosaic’s platform allows homeowners to spread renovation costs over a longer period of time, with terms of 5, 7, 10, or 12 years - but they can also pay loans off early if they choose, with no prepayment penalties.

  • Pro Contractors You Can Trust: Just like our solar financing platform, we vet all of our home improvement contractor partners to ensure that a loan through the Mosaic platform isn’t just about financing - it’s about a home improvement process you can trust from start to finish.

Home improvement financing decisions are as personal as our homes, and there’s no one-size-fits-all choice. However, by bringing the same kind of streamlined, user-friendly loan  experience to home improvement that we’ve brought to home solar, our contractor partners can offer homeowners access to a new and truly modern solution that combines the speed of credit cards with the lower interest rates of more traditional financing options.

Partnering With Mosaic

If you’re a home improvement pro, there’s one more finding from that Houzz survey that might catch your eye. While 54% of homeowners paid for renovations with only cash or other personal finances, 37% of them would have considered a better financing option if it were available.

In many cases, that better financing option might be home improvement loans through Mosaic - and the ability to offer access to them can give your company a competitive advantage. Not only that, but our user-friendly mobile app lets you easily and seamlessly integrate our home improvement financing platform into your sales process. Click here to learn more and apply now!