Always Pay Contractors With a Credit Card

pay-contractorImproving your home, landscaping or building a new structure are big undertakings and shouldn’t be taken lightly. From major decisions, like how big to build and what materials to use, to personal touches such as paint and hardware, the process takes planning, patience and funding. As anyone who has completed a building or home improvement project will tell you, a successful outcome is largely dependent on the contractor you hire. However, no matter how many references you get from trusted family or friends, problems may still arise.

Know Your Payment Options

When you’re looking to hire a contractor, make sure you know your payment options before you sign on the dotted line. It’s common practice for contractors to accept cash or checks, while credit card payments are less common and not generally encouraged. Smaller contractors often prefer cash or checks to avoid paying the processing fees charged for accepting plastic, which can be substantial at 2-3% of the total project cost. Some contractors may even pass along the fees to you…

All three options can be organized and scheduled to provide payments in a timely fashion, but using a credit card is considered the safest and most convenient. Thankfully the number of contractors who will accept credit cards is growing. According to a poll conducted by Angie’s List, a contractor review site, 65 percent of contractors graded by the service accept credit cards.

Why not pay with cash or check?

poor-constructionCash may be king in some arenas but not when it comes to paying for services that require a contractor, especially for large projects that utilize a variety of different craftsmen and specialists. The FTC cautions consumers to beware when a contractor will only accept cash payments, a possible indicator of a reputation for shoddy workmanship. Contractors who insist on cash payment may not have the financial ability to complete your project and could leave you high and dry. Another red flag to question is if the contractor requests a check in a person’s name rather than the company name.

  • Cash payments will require paying in-person and a commitment to keeping detailed records. There’s no immediate recourse, if you’re a victim of fraud.
  • Personal checks take time to write and deliver, and like cash, require manual record keeping. There’s limited recourse in the case of fraud, but you’ll have a small window of time to stop payment from the bank and fees are often involved.

Why credit cards are a better choice

The benefits of using a credit card will supersede any benefits that you might get from using checks or cash. A wise consumer will choose, and even insist on paying with a credit card, even if the interchange fee charged to the contractor by the credit card company is rolled into the overall cost of the construction project. The fraud protection alone is worth the price, knowing that you won’t be left paying for a project that was never completed or done incorrectly.

With a bit of time between authorizing a payment and when the balance is due, payment on a botched job can be put on hold or cancelled. But the most important factor is the zero-liability policy that is included in nearly every credit card agreement. If you need to withhold payment, you can contact the credit card company to explain the situation and prevent the account from going into arrears. They will notify the contractor of your dispute and that payment will not be processed until the dispute is resolved. This gives you a great deal of protection against bad contractors. If the service isn’t delivered as promised, you are also covered under the Fair Credit Billing Act. If there’s fraud involved, federal law limits your responsibility to $50.

Another benefit to consider, if you use a reward credit card, is the extra incentives you can earn from paying for a large construction project. With a traditional cash back credit card earning just 1%, you’ll earn $100 for every $10,000 you spend. Some reward cards will allow you to earn up to 5% – providing a significant savings on your construction costs.

Just One Drawback…

There is one drawback to using a credit card: if you fail to pay the balance in full and are charged interest on the balance, the cost of your project can increase substantially. If you pay a contractor with a credit card, it’s vital to pay down the balance as quickly as possible. If you have a high APR, the interest charges can accumulate fast. If you know you won’t be able to pay the balance off quickly, you may want to consider a zero-percent APR offer to eliminate interest charges for at least a year.

Other Rules to Follow

No matter how you opt to pay for a long term project, never pay it all upfront. The Contractors State License Board warns against paying more than 10 percent of the price upfront or $1,000, whichever is less. Make even smaller payments, if you’re paying cash. Statistics show that more than half of the consumers who paid the full cost upfront ended up with unfinished projects. Set up a budget to make staggered payments that are tied to the progress of the job. Check potential contractor references and be sure he has general liability insurance, since property damage and personal injury as a result of negligence cannot be totally avoided.

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