HELOC vs. contractor financing

Contractor financing is convenient: apply at the kitchen table, approved in minutes. The convenience often costs more than the rate suggests.

Reviewed by Shawn Way, NMLS #1007298★ 4.9 from 111 reviewsUpdated October 28, 2026

Three things to check in contractor financing

1. Deferred interest. "No interest if paid in full in 12 months" often means all the interest from day one is charged if any balance remains at month 13.
2. Dealer fees. Low-rate offers may add a fee to the project price. Ask for a cash price.
3. Rate after the promo. Standard rates on these plans often run 15%–27%.

Use each for

• Contractor financing: small, urgent jobs; a 0% offer you'll clear before it ends.
• HELOC: larger projects, multiple stages, and anything you'll pay down over years. See the roof example for a side-by-side.

Deferred interest, in dollars

A $12,000 project on "no interest if paid in 12 months" at a 26.99% standard rate. Pay $11,500 by month 12 and the remaining $500 triggers interest on the full original balance for the whole year: roughly $1,700, charged at once.

Example: a $15,000 project

A contractor offers 12 months "same as cash" with deferred interest at 26.99%. If you pay all $15,000 within 12 months, about $1,250 a month, you pay no interest. If even $500 is left at month 12, many deferred-interest plans charge all the interest back to day one on the full original balance, which can be around $4,000. A HELOC at 7.75% APR over 3 years costs about $468 a month and $1,860 in interest with no cliff.

Hidden dealer fees

Low advertised rates on contractor financing are often paid for with a dealer fee built into the project price, sometimes 10%–30% on solar and HVAC loans. Ask for the cash price and the financed price in writing. If they differ, the difference is a finance cost.

Paying cash gives you leverage

With a HELOC, you can pay the contractor as a cash customer. That can mean a lower price, more control over payment timing, and the ability to hold the final payment until the work is finished. Contractor financing often pays the contractor directly and quickly, which leaves you less leverage if there's a dispute.

Comparing offers

• Ask for the cash price and the financed price.
• Read whether "same as cash" is deferred interest.
• Compare the APR, not just the payment.
• Check prepayment penalties.
• Look at who holds the loan and their reputation.

A second example: HVAC

A $14,000 HVAC replacement financed through the installer at 9.99% for 10 years costs about $185 a month and $8,200 in interest. The same amount on a HELOC paid off in 5 years costs about $282 a month and $2,930 in interest. If the installer offers 18 months at true 0% and you can pay $778 a month, that's the cheapest of all.

Also asked

Is 0% contractor financing ever a good deal?

Yes, if it's true 0% (not deferred interest), there's no price markup, and you can pay it off within the promo period.

Can I combine contractor financing with a HELOC?

Yes, you can combine contractor financing with a HELOC: use a true 0% promotion for the portion you'll pay off quickly and the HELOC for the rest of the project.

What should I check in a home improvement contract?

A home improvement contract should show the contractor's license number, a detailed scope, a payment schedule tied to work done, start and completion dates, and your right to cancel.

Can I cancel contractor financing?

Sometimes. Contractor financing secured by your home usually carries a 3-business-day right to cancel, but unsecured contractor loans may not.

Is contractor financing faster?

Yes. Contractor financing is often approved the same day, even at the kitchen table, which is its main advantage over a HELOC.

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• HELOC for an ADU
• HELOC for a roof replacement
• HELOC for a pool
• HELOC for solar panels
• HELOC vs. renovation loan

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