No interest, no payment. What’s not to love? Especially if you’re a homeowner in need of a new roof or new windows. Let’s say you borrow ten thousand from the lender and—provided that you pay the loan back in full by the anniversary date—there are no payments and you’re charged no interest. It’s a one-year free ride.
The catch is that if you don’t pay the loan off in full you’re back-charged interest and they’ll stick you on a payment plan that will give you nosebleeds. That ten grand can become $12,000 real quick. And, what I’ve seen is that maybe 20% to 30% fail to pay it off.
So how about the 70% that do pay it off? How can the bank make any money on that $10,000? Don’t worry—they’ve got it covered. The homeowner isn’t paying any interest on it but you, the contractor, are. That’s usually anywhere from 5.5% to 10 or 12%. Let’s say it’s costing you $600. So the bank is actually paying out $9,400 of its money. Bottom line: The bank gets paid.
Even if they have the resources to swing a so-called “No/No” loan, people are more reluctant these days to finance a home improvement job. They don’t want to go into debt. Generally, people are eager to borrow when consumer confidence is high, and right now it isn’t. Even young people—more fearless when it comes to taking on a financial obligation—are less inclined to borrow. Here’s the thing: It’s a lot easier to sell a job if financing is at least available.
So how do you sell that $10,000 job and make money? Go in at $11,000. That way:
1. If the customer wants the “No/No”—No interest/No payment—your cost in carrying the loan is covered.
2. If the customer balks at having to pay off the loan by the anniversary date, suggest a structured home improvement loan and drop the price to $10,500, which will cover your profit and the bank fees. Move the conversation forward by putting down three payments—60 months, 84 months, 120 months. Then ask: Which of these most comfortably fits into your budget? The number one answer is: None of them. This is where all the objections come out so be ready.
3. If the customer wants to pay cash—as in a check—you can drop the price of the job to $10,000. That’s an incentive for them to buy and you’re not losing anything to bank fees. And this way you’re ready if they say: What would you do for cash?
Your Home As an Asset
If they’re strapped for cash but reluctant to finance, I explain that while most assets depreciate, historically homes go up in value. And it makes sense to leverage assets that go up in value.
For instance, If I’m selling windows I show them the Cost Vs. Value study. Home improvements certainly don’t add as much value as they did pre-recession, but clearly they increase the value of the home. So say those new windows—wood or vinyl—return 70% of their cost at resale. And let’s say that in the process of doing your research you come to understand your homeowner’s monthly average energy costs are in the range of $300. If new windows and doors can reduce that expense by say $100 a month, doesn’t it make sense to bite the bullet and pay for the windows with financing?
However people are paying for the job, the most important point to deliver when selling it is quality of life. You buy a new roof because you dread the drip drip drip of water leaking. You buy new windows because you’re stick of being distracted by the cold while sitting in a drafty room. I’ve had people buy a bow window so that their cat could have a comfortable place in the sun to sit. When you find out the real reason people want to buy—and it’s always intangible—explain how you’re going to make their life and their day that much better. At that point, the cost doesn't matter that much.
One way or another, they’ll pay it.