Consumers Using Personal Loans for Home Improvement
Consumers looking to hire contractors must be aware of the many things to look out for in order to protect their finances. They must be able to properly write out their expectations to assure that they are getting the best out of the money they are investing into their homes.
Beware of contractors’ tricks
As the economy levels out, consumers are looking to personal loans as a means of funding home improvements. The construction industry is anticipating a steady growth as consumers move back into normal spending and investing habits. One topic that is important to understand during this surge is the behind-the-scenes tactics contractors use to hike up payments. Here are some things to watch for:
- Hiring a general contractor is not always hiring a professional.
Don’t assume that a worker who uses the title “contractor” has spent years honing his craft. Only 27 states have licensing requirements for contractors and in other states, rulings vary greatly. For example, in South Carolina, to be a “licensed contractor,” worker needs to have 2 years of experience, pass an exam and submit financial documents. On the other hand, California requires 4 years of experience, proof of financial solvency and a written exam to claim licensing as a contractor. Always ask for references and be sure to check them.
- When a contractor presents you with his contract, it most likely favors his business.
A standard practice with a contract is to submit a schedule. That schedule most likely will involve the client putting up about 50% of the money, and the contractor only at about 25% completion. At this point it’s common for contractors to stop showing up to the job as often. One way to avoid this is to negotiate for 10% down, 25% when plumbing and electrical work is done, 25% when the cabinets and windows are finished, and the remainder when the job is done. The key word is to use payments as a retainer fee, assuring that everything is done the way it should be.
- Low bids are not always a great deal.
Materials and labors are relatively fixed costs, so a noticeably low bid should be a red flag to customers. Some contractors present a low price and then somewhere mid-job, they suggest an upgrade that will “work better.” In the end, the job may end up being padded along the way and the customer ends up with an even higher bid than the initial bids proposed. Lisa Curtis, former director of consumer services for the Denver district attorney’s office, stated, “Many people are duped by crooked contractors… the payments they end up with are nowhere near where they started. I’ve seen people have to take out larger personal loans, borrow from family and even tap into their 401Ks to compensate. If they protected themselves from the beginning, this wouldn’t have happened.”
- Timing is negotiable.
If a contractor is overbooked, a consumer may find the crew works for two hours and then moves on. The schedule, however, may state that workers will be putting in full days to complete the job within a general timeframe. Working a few hours definitely hampers any proposed schedule. To work around this, consumers should hire contractors who have a lead or project manager on the job from the beginning to the end. This should be the go-to person. If the job lags, the contractor has the project manager on payroll, so he/she has to be paid extra. This is an incentive to stick to the original time schedule.
Putting money back into a home
These are some things to look out for when hiring a contractor. Many more Americans are looking to make home improvements now that the economy is showing some anticipated signs of resurgence. Homeowners are hoping to take out personal loans as a way to put money back into their homes, but there are things to watch out for to protect their finances.