Attention Home Depot
shoppers: Home Improvement Loans on aisle 7
next time you trudge through those enormous orange doors in search
of a new faucet, crown molding or exterior primer, The Home Depot
is fixing to offer you a product of a different sort -- a home improvement
Do-it-yourselfers with more plans than money
can saunter into any of the nation's Home Depot stores coast to
coast and apply for a consumer loan from $3,000 to $30,000 on the
spot. The loan is only active for six months and must be spent on
Home Depot products and services, but with the right credit history
you can take up to 10 years to pay it off, with no prepayment penalty.
The Home Depot loan, the first of its kind
in the retail industry, is offered through GE Capital Financial
In a year-long study at 70 stores, Home Depot
found an under-served market between the do-it-yourselfer who puts
a few hundred dollars on his Home Depot credit card and the customer
who wants to remodel her kitchen but may not have cash in hand or
want to hassle with a home equity loan or other financing.
"What we found was our customers wanted
a vehicle to make large purchases," says Heather Wilson, Home
Depot credit marketing manager. "The idea is that the Home
Depot consumer card is for daily purchases and promotions, and the
home improvement loan is for major purchases like a new kitchen
Like its credit card, Home Depot's home improvement loan actually
represents a line of credit against which the customer may make
store purchases. Unlike the credit card, the loan closes after six
months, at which point the customer faces a fixed monthly payment
for those purchases based upon competitive loan rates for the term
of the loan.
Wilson says that according to a 2002 Simmons survey, 72 percent
of Home Depot customers are homeowners so it's only logical that,
along with materials, installation and design help, Home Depot offers
its customers financial assistance with their home improvement projects.
Steve Davidson, an economist with America's
Community Bankers, agrees the concept is a healthy one.
"Anything that provides convenience for
the financial services customer is positive. Certainly, banking
anytime and anywhere is the coming thing," he says.
That said, he has some reservations about consumers
who might be tempted to buy now and not pay later.
"The consumer would have to be cautious.
Are these loan customers people who are maxed out on their credit
cards?" he wonders. "Maybe this is an easier way than
applying for a credit card. One would hope that the underwriting
is as careful as conventional financial institutions would do. If
the worst scenario were to occur, it would tend to paint the entire
financial services industry in an unfavorable way."
Where retail and banking
No one is predicting that loan programs will start to crop up like
toadstools, even among major retailers. The home improvement industry
represents a niche market where, at least in the estimation of GE
Capital, the risk of offering unsecured loans of up to $30,000 is
mitigated by the credit and demographic profile of a well-established
The move is a savvy one for Home Depot, according
to Bob McGoffin, professor at the Graduate
School of Banking at Louisiana State University.
"For quite some time, we've been in the
retail business as banks, as financial services retailers,"
he says. "The industry as we've known it is changing, and it
doesn't surprise me that retailers are doing some of the things
that banks have done, any more than it should surprise you that
banks are doing some of the things that retailers have done."
McGoffin figures if the bank on the corner
can start offering insurance and rent part of its space to Starbucks,
why shouldn't retailers offer loans?
"We're really looking at what we can put
together for our customer base to keep their loyalty. That's exactly
what Home Depot's doing and I take my hat off to them."
Jay MacDonald is a freelance
writer based in Florida.