How to Pay Contractors: A Complete Guide

Home improvement can be exciting and stressful, whether a minor home repair or a significant home remodeling project. Budgeting is essential to any home project, and knowing how to pay contractors is necessary before signing a contract. Here’s what you need to know about paying contractors.

What Is a Contractor?

Sometimes, there’s confusion about the difference between a builder and a general contractor or between a carpenter and a contractor. A contractor performs general work for you, like home renovations or repairs, whereas a builder focuses on construction, and a carpenter specializes in the wooden elements of your home. Depending on your project, you might hire a general contractor who manages the project from start to finish, including hiring subcontractors for specialized tasks like electrical, plumbing, or carpentry. You might also hire specific contractors directly if your project is one specialized task, like rewiring electrical or replacing drywall.

Depending on the scope of the work, contractors may charge by the hour or by project. General contractors typically charge a percentage of the total construction cost (usually 10% to 20%), though others may charge $50 to $150 per hour.

Common Ways to Pay Contractors

There are several ways to pay a contractor for home improvement or repair work. Your options will depend on the cost of the project, your credit score, and your level of comfort with borrowing money.

Cash, Check, or Debit Card

If you have the money saved, you can pay general contractors near you with cash, a check, or a debit card. The most significant benefit of paying with cash is that you aren’t taking on debt or accruing interest.

There are drawbacks to paying your contractor with cash, though. If you don’t have the money saved, you’ll need to wait longer to undertake the home improvement project—and if you do have the money, you risk depleting your emergency savings account. If your savings won’t cover the contractor’s bill entirely, consider paying partially in cash.

Credit Card

Paying by credit card is a solid option if you’re making minor updates to your home. Credit cards often come with cashback rewards or other perks you can earn when you use your card to pay your contractor.

However, credit cards often have high interest rates. If you use a credit card, plan to pay off the balance ASAP to avoid racking up interest. Alternatively, see if you qualify for a card with a 0% introductory rate. These cards often let you carry a balance for a preset period (such as a year) without charging interest.

Home Improvement Loans

A home improvement loan provides you with a lump sum of cash (typically $1,000 to $100,000) that you can use to pay your contractor. These are unsecured personal loans, which means there’s no collateral for the lender to collect if you default. Therefore, they tend to have higher interest rates than secured loans—especially if you don’t have stellar credit.

Home improvement loans usually offer quick funding and low fees. However, the monthly payments are often high. Before applying for this type of loan, consider your credit score and your ability to repay the loan.

Home Equity Loans

Home equity loans and lines of credit allow you to borrow against the equity in your home, making them ideal for larger projects. Home equity loans pay you a lump sum of cash you repay over a fixed term, while home equity lines of credit (HELOCs) act as revolving credit, similar to a credit card. You can use that money to pay your contractor.

You must have a certain amount of equity in your home (typically 15% to 20%) to qualify for this type of loan. And since your home secures home equity loans and lines of credit, you risk losing your home if you default on repayments. 

When to Pay Contractors

Your contractor will provide you with a payment schedule when you sign a contract agreeing to hire them. The payment schedule will depend on the contractor’s workflow and the project scope. For larger projects that require more materials up front, your contractor may require a down payment of up to 50%, with the balance due upon completion. For some projects, like a kitchen or bathroom remodel, contractors might break the total cost down into increments that you’ll pay at specific project milestones.

If you’re uncertain of your contractor’s payment schedule, check with them before signing a contract to ensure you’re prepared for the project ahead.