Home improvement loans: checking the financing that comes with a quote

Ask for two prices on one page: what the job costs if you pay cash, and what you will pay in total if you take the loan. Regulation Z defines the cash price as the price at which a creditor, in the ordinary course of business, offers to sell the property or service for cash (12 CFR 1026.2). For a closed-end loan, the disclosure must show the amount financed, the finance charge, the annual percentage rate and the total of payments (12 CFR 1026.18; for a loan secured by your home, the Closing Disclosure, 12 CFR 1026.38(o)). If the amount financed is larger than the cash price, find out why: in solar lending, the CFPB found hidden dealer fees "typically range from between 10 to 30 percent of the cash price" and are built into the loan principal (CFPB). Then check two protections: the right to rescind when your home secures the loan, and the Holder notice when the contractor arranges the credit. This guide quotes the rules; it is not legal advice.

Step 1: put the cash price next to the amount financed

A financing offer usually leads with a monthly payment. The payment alone tells you nothing about the price. You need the cash price for the same scope of work, in writing, and the amount financed from the loan disclosure. Regulation Z describes the amount financed as "the amount of credit provided to you or on your behalf", and it is calculated by "determining the principal loan amount or the cash price (subtracting any downpayment)", adding other amounts financed that are not part of the finance charge, and "subtracting any prepaid finance charge" (12 CFR 1026.18(b)).

If the amount financed is higher than the cash price minus your down payment, the difference is money you are borrowing for something other than the work. The best documented example is from solar lending. The CFPB describes a project that would cost $30,000 in cash, with a $9,000 hidden fee (30 percent of the cash price): "The loan documents would show a loan principal of $39,000 plus interest", and the lender would send the $30,000 cash price to the installer and keep the $9,000 (CFPB, Issue Spotlight). The same report lists other names for these fees, including "program fees", "lending fees", "finance fees" and "platform fees". That report covers solar loans; it does not say how often other home improvement loans carry such fees. The check is the same for any job: cash price and loan principal, side by side.

Step 2: read the four Truth in Lending numbers

For closed-end credit, the creditor must disclose these terms, with descriptions like the ones Regulation Z gives (12 CFR 1026.18):

In a credit sale, where the seller is the creditor, the disclosure also shows the total sale price: "the total price of your purchase on credit, including your downpayment" (12 CFR 1026.18(j)). The disclosures must come "before consummation of the transaction", "clearly and conspicuously in writing, in a form that the consumer may keep", and the terms finance charge and annual percentage rate "shall be more conspicuous than any other disclosure", with one exception for the creditor's identity (12 CFR 1026.17). Consummation is "the time that a consumer becomes contractually obligated on a credit transaction" (12 CFR 1026.2). So you should see these numbers before you sign the loan, not after. If the loan is secured by your home, the rule is different: you get a Loan Estimate, and the Closing Disclosure must reach you no later than three business days before consummation (12 CFR 1026.19(e) and (f)). It shows the same four numbers under Loan Calculations (12 CFR 1026.38(o)).

One limit: the Truth in Lending Act has an exemption threshold for large loans, $73,400 from January 1, 2026. Loans secured by real property or by a consumer's principal dwelling "are covered by TILA regardless of the loan amount" (Federal Register 2025-22814). For a large unsecured loan, ask the lender in writing whether these disclosures apply.

The CFPB adds a caution from solar lending: lenders "do not include the hidden fees in the total costs of credit that they present to consumers", and the APRs they quote "often do not include fees that increase the loan principal on top of the cash price" (CFPB). That is why the finance charge and the APR are not enough on their own. The total of payments minus the cash price is.

A worked example: cash price, amount financed, total of payments

Illustrative quote, written for teaching. A contractor quotes a job at a cash price of $24,000. The financing option on the same quote is "$0 down, 9.99% APR, 120 months", and the loan disclosure shows an amount financed of $27,600. The $3,600 difference is a fee of 15% of the cash price ($24,000 x 0.15 = $3,600) built into the principal, the way the CFPB describes dealer fees in solar loans. The example assumes no prepaid finance charge and 120 equal payments, rounded to the cent. The example copies how the CFPB says solar lenders present these fees. Whether a fee like this belongs in the finance charge is a legal question this example does not decide (12 CFR 1026.4).

The monthly payment comes from the standard amortization formula: payment = P x r / (1 minus (1 + r) to the power of minus n). Inputs: P = $27,600, r = 9.99% / 12 = 0.008325 per month, n = 120. Then (1.008325) to the 120th power = 2.704358, its inverse is 0.369774, and 1 minus 0.369774 = 0.630226. P x r = $27,600 x 0.008325 = $229.77. Payment = $229.77 / 0.630226 = $364.58.

The disclosure in this example says the credit costs $16,149.60 at 9.99%. Measured from the cash price, it costs $19,749.60, which is the $3,600 fee plus the $16,149.60. Solving the same formula for the rate at which 120 payments of $364.58 repay $24,000 gives about 13.44% a year. That is the rate you are really paying on the work, and it appears nowhere on this example's disclosure.

Now compare a loan the homeowner arranges independently for the cash price only: $24,000 at 11.99% APR for 120 months. Inputs: r = 11.99% / 12 = 0.0099917 per month (rounded), (1 + r) to the 120th power = 3.297121, its inverse is 0.303295, and 1 minus 0.303295 = 0.696705. P x r = $24,000 x 0.1199 / 12 = $239.80. Payment = $239.80 / 0.696705 = $344.19. Total of payments = $344.19 x 120 = $41,302.80. The loan with the higher APR costs $2,446.80 less in total ($43,749.60 minus $41,302.80) and $20.39 less a month ($364.58 minus $344.19), because it does not finance the $3,600. Rates here are illustrative, not offers or market rates.

Step 3: if your home secures the loan, you usually have a right to rescind

Regulation Z gives a right to rescind "in a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling". Each consumer whose ownership interest is or will be subject to the security interest has that right, except in the transactions listed in paragraph (f) (12 CFR 1026.23(a)(1)). The first listed exemption is "a residential mortgage transaction", which the rule defines as financing "the acquisition or initial construction" of the dwelling (12 CFR 1026.2(a)(24)). Financing work on a home you already own is not that.

• How long. "The consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, whichever occurs last." Material disclosures are the APR, the finance charge, the amount financed, the total of payments and the payment schedule, plus "the disclosures and limitations referred to in §§ 1026.32(c) and (d) and 1026.43(g)" (12 CFR 1026.23(a)(3)).
• Which days count. For rescission, a business day means "all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a)" (12 CFR 1026.2(a)(6)). Saturdays count. If you sign on a Monday and get the notice and all disclosures that day, the days are Tuesday, Wednesday and Thursday, so the right runs to midnight Thursday. Sign on a Thursday and the days are Friday, Saturday and Monday. Both examples assume no holiday falls in the window.
• How. Notify the creditor "by mail, telegram or other means of written communication" (12 CFR 1026.23(a)(2)). The creditor must give each consumer entitled to rescind two copies of the notice of the right to rescind, or one copy each if delivered electronically (12 CFR 1026.23(b)(1)).
• No work during the window. Unless the consumer waives the right, "no money shall be disbursed other than in escrow, no services shall be performed and no materials delivered until the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded" (12 CFR 1026.23(c)). A waiver is allowed only if the consumer determines the credit "is needed to meet a bona fide personal financial emergency" (12 CFR 1026.23(e)).
• If you rescind. "The security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge", and the creditor must return money or property "within 20 calendar days after receipt of a notice of rescission". The rule also sets out what the consumer must return (12 CFR 1026.23(d)).
• If the notice or disclosures never came. "The right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first" (12 CFR 1026.23(a)(3)).

When is a home improvement loan secured by your home? A mortgage or deed of trust is the clear case. For rescission, Regulation Z also counts "interests that arise solely by operation of law" (12 CFR 1026.2(a)(25)). The CFPB's official interpretation lists, as rescindable, "a security interest that is acquired by a contractor who is also extending the credit in the transaction", and "a mechanic's or materialman's lien that is retained by a subcontractor or supplier of the contractor-creditor, even when the latter has waived its own security interest in the consumer's home". It lists as not rescindable a case where "a mechanic's or materialman's lien is obtained by a contractor who is not a party to the credit transaction but is merely paid with the proceeds of the consumer's unsecured bank loan" (comment 23(a)(1)-1). Whether your loan is secured is a question to put to the lender in writing.

Step 4: the Holder notice, when the contractor arranges the loan

A contractor may sell the credit contract to a finance company, or send you to a lender it works with. The FTC's Holder Rule makes it an unfair or deceptive practice for a seller, directly or indirectly, to take or receive a consumer credit contract that lacks a set notice, "in at least ten point, bold face, type". It also bars the seller from accepting the proceeds of a "purchase money loan" unless the credit contract made with that loan carries the notice (16 CFR 433.2). The notice in a seller's own credit contract reads:

"ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

Read plainly: claims and defenses you could raise against the contractor can also be raised against whoever holds the credit contract, and recovery under the clause is capped at what you paid under it. A purchase money loan, in the rule, is a cash advance the consumer receives in return for a finance charge and applies "in whole or substantial part" to a purchase from a seller who "refers consumers to the creditor" or "is affiliated with the creditor by common control, contract, or business arrangement" (16 CFR 433.1(d)). In the rule, a consumer is "a natural person who seeks or acquires goods or services for personal, family, or household use".

So for any loan that comes through the contractor, look for the notice in bold in the credit contract. If it is missing, ask why before you sign. A loan you find on your own, from a lender the contractor did not refer you to and is not affiliated with, does not fit the rule's definition of a purchase money loan. That is one more question to ask when you compare.

"Same as cash" and "no interest if paid in full"

Some contractors offer a promotion on a credit card or store account. The CFPB explains the difference between two kinds. "Deferred interest offers use language like “No interest if paid in full within 12 months.”" "Zero interest offers use language like “0% intro APR on purchases for 12 months.”" And: "Deferred interest means that if you do not pay off the entire balance of the promotional purchase you’ve made on your card, then interest going back to the date of the purchase will be added on top of the remaining balance" (CFPB, June 8, 2017).

The CFPB wrote that page about credit cards. If the promotion on your quote uses the words "if paid in full", ask whether it is deferred interest, how long the promotional period lasts, and what the rate will be after it ends. Then work out whether you can pay the whole balance before the date. If you cannot, compare it as a loan at the after-promotion rate.

Step 5: compare with a loan you arrange yourself

The FTC's advice is direct: "Never agree to financing through your contractor without shopping around and comparing loan terms", and "Never agree to any loan without understanding the terms of the loan and knowing whether you can make the payments" (FTC). To compare fairly:

1. Ask each lender to price the same amount: the contractor's cash price minus your down payment.
2. Use the same term on every quote, for example 120 months, so the totals line up.
3. Compare the total of payments from each Truth in Lending disclosure. Subtract the cash price from each. The smaller number is the cheaper loan for this job.
4. Ask whether each loan is secured by your home. A secured loan carries the right to rescind above; it also puts the home behind the debt.
5. Ask whether the contractor's price changes if you pay with your own loan or cash. If it does, the higher price is part of the cost of the contractor's financing.

The worked example above shows why the total matters more than the APR: the loan with the higher rate cost less, because it financed only the cash price.

Warning signs in the wording, not the numbers

• A monthly payment with no cash price. Without the cash price you cannot see a fee built into the principal (CFPB).
• "The APR is the interest rate." The CFPB found solar APRs often leave out fees added to the principal. Ask for the amount financed and the total of payments (CFPB; 12 CFR 1026.18).
• "We can start tomorrow" on a loan secured by your home. During the rescission period, no services are to be performed and no materials delivered unless you waive the right for a bona fide personal financial emergency (12 CFR 1026.23(c) and (e)).
• "Sign here and we will send the paperwork later." Disclosures are due before consummation, in writing you may keep (12 CFR 1026.17).
• "Same as cash" or "no interest if paid in full." Ask whether it is deferred interest (CFPB).
• "He says he can arrange financing through a lender he knows." The FTC uses these words in a scam story where the homeowner later finds a home equity loan "with a high interest rate, points, and fees" (FTC). See also what to do when the price is only good today.

What to ask the contractor, in one message

1. The cash price for exactly this scope of work, in writing, and whether it changes if I pay cash or use my own loan.
2. The Truth in Lending disclosure before I sign: amount financed, finance charge, APR, total of payments and payment schedule.
3. If the amount financed is more than the cash price minus my down payment, what the difference is for, by name and amount.
4. Whether the loan or the contract gives anyone a security interest or lien on my home, and if so, my Notice of Right to Cancel.
5. Who the creditor is, whether you are paid by the lender for the referral, and where the Holder notice appears in the credit contract.
6. If there is a promotion: whether it is deferred interest, the promotional period, and the rate after it ends.

If you would rather not do the arithmetic, upload the quote and the loan papers and we lay out every line, mark the lines nobody can check, and write the questions for you. We are paid by homeowners only and take no fee from contractors or lenders. Check a quote from $39, or get a free teardown first.

Questions

How do I tell if contractor financing costs more than paying cash?

Get the cash price in writing and the Truth in Lending disclosure for the loan. Subtract the cash price from the total of payments: that is what the loan costs you. If the amount financed is higher than the cash price minus your down payment, ask what the difference is for. In solar lending, the CFPB found dealer fees typically run 10 to 30 percent of the cash price.

What numbers must a home improvement loan disclosure show?

For a closed-end loan not secured by your home, Regulation Z (12 CFR 1026.18) requires the amount financed, the finance charge, the annual percentage rate and the total of payments, among other items, in writing before you become obligated (12 CFR 1026.17). If the loan is secured by your home, the same four numbers appear on the Closing Disclosure, which you must receive at least three business days before consummation (12 CFR 1026.19(f), 1026.38(o)).

Can I cancel a home improvement loan after I sign?

If the loan gives a security interest in your principal dwelling, Regulation Z (12 CFR 1026.23) usually lets you rescind until midnight of the third business day after consummation, delivery of the rescission notice or delivery of all material disclosures, whichever is last. Saturdays count; Sundays and federal legal public holidays do not. Notify the creditor in writing. Exceptions include a loan from a state agency and a refinancing by the same creditor.

What is the FTC Holder Rule for contractor financing?

Under 16 CFR Part 433, a seller may not take a consumer credit contract, or accept the proceeds of a loan from a lender it refers customers to or is affiliated with, unless the credit contract carries a notice making the holder subject to the claims and defenses the buyer could assert against the seller. Recovery under the notice is capped at amounts the buyer paid.

Is a "same as cash" offer the same as 0% interest?

Not always. The CFPB explains that deferred interest offers use language like "No interest if paid in full within 12 months". If the promotional balance is not paid off in full, interest going back to the date of purchase is added. A 0% intro APR offer does not work that way. Ask which kind you are being offered.

Sources

Every figure above links to the public record it comes from. Agency pages, reports and rules are quoted as published on October 16, 2026; check the source for changes.

1. eCFR, 12 CFR 1026.2, Regulation Z: definitions (business day, cash price, consummation, residential mortgage transaction, security interest)
2. eCFR, 12 CFR 1026.18, Regulation Z: content of disclosures (closed-end credit)
3. eCFR, 12 CFR 1026.38, Regulation Z: content of disclosures for certain mortgage transactions (Closing Disclosure)
4. Consumer Financial Protection Bureau, Issue Spotlight: Solar Financing (August 7, 2024)
5. Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.18, Content of disclosures (version of April 8, 2026)
6. Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.17, General disclosure requirements (current version)
7. eCFR, 12 CFR 1026.19, Regulation Z: certain mortgage and variable-rate transactions (Loan Estimate and Closing Disclosure timing)
8. Federal Reserve Board and Consumer Financial Protection Bureau, Truth in Lending (Regulation Z) exemption threshold, FR Doc. 2025-22814 (December 15, 2025)
9. eCFR, 12 CFR 1026.4, Regulation Z: finance charge
10. eCFR, 12 CFR 1026.23, Regulation Z: right of rescission
11. Consumer Financial Protection Bureau, Regulation Z, Official Interpretation of 1026.23, comment 23(a)(1)-1 (version of April 8, 2026)
12. eCFR, 16 CFR Part 433, Federal Trade Commission, Preservation of Consumers' Claims and Defenses (the Holder Rule)
13. Consumer Financial Protection Bureau, How to understand special promotional financing offers on credit cards (June 8, 2017)
14. Federal Trade Commission, consumer advice: How To Avoid a Home Improvement Scam

Related guides

• Is my solar quote fair? Check the price per watt
• How much deposit should I pay a contractor?
• The contractor says the price is only good today. What can I do?

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