Payment Options: Paper or Plastic?
Financing a home renovation project can be difficult enough as it is, but failing to take the proper precautions when paying a contractor can often make the financial aspect of the project even more stressful.
In many circumstances, consumers have the ability pay a contractor with cash, a personal check, a credit card or a debit card.
According to a nationwide Angie’s List poll:
- More than 80 percent of respondents say they typically pay a contract with a check;
- 37 percent have paid a contractor with cash for a project;
- 12% have paid a contractor the full cost of a job in advance of the work being done; of those respondents 53% said the contractor failed to finish the job.
Although some methods may be better than others overall, if you find yourself in a position to only choose one, there are certain approaches you can take to ensure a more successful transaction.
- Cash: The Federal Trade Commission claims that a contractor who only offers the option of paying in cash is usually not as reputable as one who has other payment options available. Although it may not always be the case, a contractor who asks for a cash payment as opposed to a check or credit card payment could possibly be using a portion of the cash for other things. TIP: Although paying cash is not the best option, you can make it a little safer by signing a contract or a "receipt" with each cash transaction. In general, it is usually not a good practice to pay cash up front. But if cash payments are necessary, choose smaller payment increments throughout the course of the project to ensure that the job is done according to your preferences.
- Check: Paying with a check can better ensure that your payments are going toward buying the materials for the project and paying for the labor required to complete the project. If a contractor asks for you to write a check for a payment higher than 1/3 of the project’s overall cost, it should be cause for concern. TIP: If you pay a contractor with a personal check, always scan a copy of each one and ask the contractor to indicate exactly what each payment will be used for. Be sure to write this in the memo section of the check.
- Credit card: Of all the payment methods available, paying with a credit card is usually the safest and most effective option. With credit card payments, you can conveniently organize regular payments throughout the course of the project through direct deposit options. Paying by credit card can also provide more substantial proof that you paid the contractor for the job in the event that the project is not completed according to your standards or is not completed at all. TIP: When paying with a credit card, always opt for timed increments and make sure to cancel these transactions immediately if the project is not completed as expected.
- Debit card: Be careful if you're using a debit card to make a purchase, as it doesn't offer the same consumer protections as a credit card. Although credit and debit cards themselves may look almost identical, financial transactions made with a debit card are just like writing a check. Due to this factor, the Federal Deposit Insurance Corporation states that once a transaction takes place, the money can be transferred out of the account almost immediately, which can cause potential problems with overdrafts or account balance minimums. Under federal law, debit cardholders also do not have the right to stop payment if there was a dispute with a merchant. Although debit cardholder protection options vary widely by the issuing bank or institution, if an issue arises with a debit card, you may be forced to resolve it directly with the merchant. TIP: Find a contractor who meets your expectations in terms of quality and accepts your preferred method of payment.