Don't get burned on financing.(REMODELING)

Finding the best financing for a kitchen project is as important as identifying the right cabinets or range, when you consider the long-term effect on your wallet. A difference of 1 percentage point in the interest rate on $25,000 that you borrow on a home-equity line of credit, for instance, will increase your minimum payments $250 per year.

That's a simple enough calculation, but it's easy to forget when you're evaluating the many financing promotions available, including new offers that can seem advantageous. Lowe's, for example, recently introduced a "project card" that gives customers a six-month, no-interest window in which to make all project purchases; you can make payments in that period without owing any interest. After that, you cannot make more purchases with the card and must repay at a fixed rate ranging from 8 to 18 percent.

In fact, that product is just a variation on a home-improvement loan, with terms nearly identical to those of Home Depot's offer. One difference is that the Lowe's card lets you open additional project loans without reapplying; Home Depot doesn't offer that option, but it provides a credit card for additional purchases. Lowe's and Home Depot's regular credit cards, marketed to consumers making smaller purchases, are also nearly identical, with annual interest rates as high as 21 percent.

Traditional lenders are also finding ways to ride the wave of home improvement. JPMorgan Chase and the Reader's Digest Association, for example, recently introduced the Chase Home Improvement Rewards Card. The card gives three reward points for each dollar spent on home-improvement purchases, and every 2,500 points earns a $25 gift card. The card also offers a 0 percent introductory rate for up to 12 months for select applicants. But beyond those niceties are big interest rates--up to 22.74 percent annually--for borrowers who don't meet Chase's requirements. A revolving balance of just $100 would generate interest to consume most of the savings from that $25 gift card.

HOW TO CHOOSE

Select your financing based on the kind and size of project you're planning and how much equity and cash you can spare. Then compare like products' interest rates, expressed as an annual percentage rate (APR). Costs such as origination fees and early-termination fees are worth comparing, though they become less important the larger your total project. Here's a rundown of your major options:

Savings. Use cash from savings or liquidated investments if you have the money available and don't want to worry about future debt. The majority of CR readers use this route. In our most recent survey, 61 percent of people who spent $20,000 or more on a kitchen remodel financed most of the job with cash. Before you start writing checks, however, it's wise to consider the opportunity cost: How much might that cash have earned if it had been invested? Currently, an insured, 4 percent money-market account wouldn't make more than the 7 or 8 percent you'd pay when borrowing from your home equity. That makes paying in cash a better deal than incurring debt.