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Pros and Cons of The Home Depot Project Loan

Orange carts, orange child's cart, orange store accents.

The Home Depot offers a variety of credit options, including a credit card and a Project Loan for consumers. The Home Depot Project Loan is a six-month line of credit (for your approved total loan amount) during which you can purchase any product at a Home Depot store or on their website, or pay for Home Depot installation services. Is it a good deal?

The offer

The Home Depot Project Loan is for projects that cost $2,500 or more. The Home Depot will open a line of credit in the approved amount; the borrower is then issued a special credit card to use for six months, at which time no new charges may be added, and fixed payments begin for a period of 84 months (seven years).

The website currently advertises an interest rate of 13.99%, but upon closer inspection, the fine print reveals that the interest each borrower is charged depends on his or her credit and can be as high as 23.99%.

The Pros

Payments are waived and no interest accrues for the first six months, while you are still planning and completing your project and making purchases for it.

No prepayment penalty for paying off the balance at any time prior to the end of the 84 months.

No annual fee.

Do-it-yourselfers will appreciate the opportunity to take control of the home improvement project and budget.

The Cons

Purchases are limited to what the Home Depot offers. You can’t shop around and purchase materials from any other vendor with these funds.

The interest rates for home equity loans and lines of credit currently range from 4.5% to 6.25% - a far cry from the 13.99% you’ll pay to the Home Depot if you don’t pay off your balance within the six month interest-free window. But not everyone will qualify for a low interest home equity loan, so the interest rate must be compared to each borrower’s alternatives.

Payments must be made online or on the phone and cannot be made in the store. This is inconvenient since customers who take advantage of this loan are presumably in the store with some regularity.

This reviewer observed (very unhappily) that the receipt for her telephone payment arrived on a postcard, revealing her name, address, loan balance and payment details. In this age of identity theft, many consumers would be similarly angered by such a breach of privacy.

The same reviewer also noted that you cannot make payments using a credit or debit card, so you give up the opportunity to earn rewards for these major purchases.

The bottom line

The real value of this loan is to be determined by the interest rate offered to each borrower. If you can qualify for a relatively low interest rate and you don’t want to borrow a large amount (under $20,000), this loan might be a good alternative to a home equity loan.

If you take advantage of the terms of this loan and use the entire seven year repayment period to pay off your balance, your total interest charges will be quite high. If you borrow $20,000, a monthly payment of $375 might sound very affordable. But you’ll pay nearly $11,500 in interest charges over the life of the loan.

As always, approach interest-free introductory offers with great caution. If you’re great with money and you can pay off the balance within the six-month interest-free window, this offer could help you. That’s especially true if you have an urgent maintenance situation but need a little bit of breathing room for paying it off.  If you can afford to pay off the balance within a few months, why not save the money first and just pay cash?

For the rest of us, the interest-free window simply delays the inevitable – payment of interest charges that you might be able to beat with other, more affordable financing. Those who can’t afford to pay off the balance within a few months should consider doubling the payment to avoid excessive interest charges. In our $20,000 loan example above, if you increase the payment to $700 per month, you’ll pay off your loan in just 35 months, and you’ll reduce your total interest charges to under $4,500 – a savings of over $7,000.

You may also be interested in our review of the Home Depot Consumer Credit Card. If you're a contractor, check out the The Home Depot Commercial Revolving Charge Card and The Home Depot Commercial Account.

Image © Joe Wolf

About Kimberly Rotter

Credit Card Insider
318 S. Clinton Street, Suite 501 SyracuseNY13202 USA 
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  • Lori Brock

    This information is not totally accurate and, I believe, doesn’t paint an accurate picture. The current advertised rate for a Home Depot Project Loan is 7.9%. However, we recently got our loan for 5.9% when they were willing to match a major competitor’s rates. We needed new carpet very badly and were able to get it for an affordable price, and at what I consider a very reasonable rate. I’ve very thankful for the HD Project Loan, the rate we got, and for the fact that we have a full 84 months to pay it off; plus we have beautiful, new, very soft carpet (which the major competitor didn’t have)! Thank you, Home Depot!

    By the way, it makes sense that if the company is going to offer you a loan, you should only be able to buy from them. That’s the reason for offering the loan.

    • Janet Martin

      Lori, if you read this I would greatly appreciate if you could disclose who the major competitor was who was offering the 5.9% rate that got HD to lower their advertised 7,9% for you. We are looking at the HD Project Loan and would love to get them to lower the rate! Thank you!

      • Levelheadsteve