If you’re like 47% of Americans, even a $1,000 emergency expense can add up to a lot of money. Fortunately, many HVAC providers offer promotional financing or have connections with third-party lenders to help pay for HVAC repairs. Each has advantages and disadvantages, and one may be better than the other in some situations.
According to Justin Livesay, director of credit and collections for American Residential Services, LLC (ARS), a national HVAC installer, “0% sounds great, but when you’re talking about a $10,000 system…” It might not be what you think. Personal loans and credit cards are also options, but each has its drawbacks.
USA TODAY breaks it down and shows you what you need to know about HVAC financing.
Signs that it’s time to replace your HVAC system
As your HVAC system ages, it will show signs that it’s time to replace it, but the most common signs are:
- System age: If your system is more than 10 years old, we recommend replacing it before it breaks down. “Typically, I think HVAC has a 10-year lifespan,” Livesay says. “It’s probably a little over 10 years old. But if it was 10 years ago, you’d be concerned that the unit would break down quickly.”
- Rising utility costs: “If your utility bills have increased over the past five years, much of that may be related to the system itself becoming unmaintainable due to age and wear and tear,” Livesay says.
- System struggles in extreme heat: If your AC unit can’t handle the heat, it could mean it’s nearing replacement. “It’s clear that modern systems can handle today’s heat better than older systems.”
How much does a new HVAC system cost?
The average cost to replace an HVAC unit is approximately $12,000, but the average cost ranges from $7,500 to $14,500. It’s not uncommon for bills to reach $30,000 for an entire HVAC system.
Common HVAC financing options
80% of HVAC projects in the United States are funded in several ways.
Contractor Financing / 0% Financing
- Strong Points: No interest during promotional period, often no down payment, fast approval
- Cons: Deferred interest rates may be higher and higher monthly payments may be required to pay off before promotion ends
One of the easiest ways to pay for a new HVAC system is through a lender that your HVAC contractor works with. Applying is usually simple, doesn’t require anything else, and allows contractors to charge the project directly to the loan.
Interest-free loans are best because you may not have to pay more than the cost of replacing your HVAC. If you can pay it off within the promotional period (often 12 to 18 months), you won’t have to pay any more. However, a shorter term means higher monthly payments. “0% sounds great, but if you’re talking about a $10,000 system and that 0% plan is for two or three years, that’s a significant amount of money you have to make every month,” Livesay says.
Another big drawback is that after that period, interest rates can skyrocket and cause serious problems. Interest rates of 20% to 30% are not uncommon, but this can extend the life of your loan and increase your payments.
Home Equity Line of Credit (HELOC)
- Strong Points: Interest may be tax deductible, lower interest rates are available, and you have the flexibility to borrow only as much as you need.
- Cons: Your home will be used as collateral so the process may take some time
Home equity can be used to pay for air conditioning. Home equity lines of credit (HELOCs) offer lower interest rates than other types of loans, and the interest you pay may be tax deductible.
The home equity line is not free money, so you have to pay back the loan. Because a HELOC uses your home as collateral, your home can be at risk of foreclosure if you miss payments. It also takes longer to process and may incur additional fees, such as appraisal fees and closing costs.
personal loan
- Strong Points: Choose your loan servicer and get same-day, predictable payments
- Cons: Favorable interest rates depend on your credit score and often have higher interest rates
Instead of finalizing through an HVAC contractor, you can also choose a personal loan through your provider of choice. This can be done through almost all major banks and can provide quick, sometimes same-day funding.
However, your credit score can affect the amount and interest rate you receive. This could mean higher interest rates or not having enough money to cover the entire project.
credit card
- Strong Points: Get your money fast with a sign-up bonus and a low introductory APR of 0%
- Cons: Post-introduction APR will be higher and may affect your credit score
If you don’t want to take out a loan, you can pay for your HVAC replacement with a credit card. Get a sign-on bonus and 0% interest when you open a new card. But like any personal loan, it can cause headaches if you don’t pay off the card quickly.
“Credit cards offer a flexible credit limit that you can use over a period of time, but they often come with much higher interest rates,” says Livesay. If you don’t pay off your HVAC project during the promotional period, high interest rates can make it difficult to pay off your card.
How to choose the right financing option
The right financing option will be different for each household, so choose based on what makes sense. Factors that can be considered include:
- Compare monthly affordability: The loan amount and interest rate all affect your monthly costs. Lower interest rates mean lower monthly payments. Compare interest rates on different loans and the one with the lowest interest rate may be your best option.
- Don’t just focus on interest rates. Don’t ignore interest rates. However, don’t let the interest rate be the only factor influencing your choice. Promotional periods, loan terms, and down payments must also be considered. For example, “traditional installment loans over a seven- or 10-year span are a little more flexible than some 0% loans,” Livesay says.
- Understand the finer details: HVAC loans that claim zero down payment and no interest for a year may seem appealing, but they can be misleading. Once the year is over, your APR can skyrocket. “You need to understand that this is deferred interest and there may be promotional periods that only apply to 0%,” Livesay says.
Mistakes to avoid when financing your HVAC system
“One of the biggest mistakes they make is not reading the loan documents and understanding what they will be paying for if they choose the loan,” Livesay says. You’ll need to know the length of your loan, interest rate, promotional period details, and who your loan servicer is.
Some common mistakes people make when financing a new HVAC system include:
- If you haven’t read the loan documents: Be sure to read the loan terms and understand the fine print.
- Not understanding the total loan amount: With interest, the loan costs more than the bill. Every month, you pay back interest and a portion of the amount you borrowed.
- Pay only the bare minimum: If you can pay a little bit each month, you’ll end up saving more. “I encourage everyone to pay a little more,” Livesey said.
FAQ
Are 0% HVAC financing transactions really free?
No, a 0% HVAC financing deal is not a free loan. Most companies offer deferred interest. This means you get a promotional period with no interest accruing. If you pay off the loan before interest accrues, you won’t have to pay more than the total cost of the HVAC installation.
Is the contractor financing fast?
Contractor financing is quick, and many “can get same-day financing and even have equipment installed the same day,” Livesay says. Personal loans can be as fast as same-day payments, but they can also take up to 5 days.
Should you replace your HVAC system before it breaks?
If you want to avoid HVAC emergencies, it’s best to replace it before it breaks down. Once your system is 10 years old, you should probably consider a new system.
