If you’re like 47% of Americans, even a $1,000 emergency expense would break the bank. Luckily, many HVAC providers offer promotional financing or have connections to third-party lenders to help you pay for HVAC repairs. Each has its pros and cons, and one might be better for your situation than another.
According to Justin Livesay, director of credit and collections at 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 it seems. Personal loans and credit cards are also options, but come with drawbacks of their own.
Here’s what you should know about HVAC financing.
Signs It’s Time to Replace Your HVAC System
As your HVAC system gets older, there will be signs it’s time to replace it, but the most common signs are:
Age of the system: If your system has passed a decade, replacing it before it breaks down might be a good idea. “Generally, I would say the lifespan of an HVAC is 10 years,” says Livesay. “It could probably go a little past 10. But if it’s 10 years old, I would be concerned that that unit would go out soon.”
Rising energy bills: “If your energy bills have gone up over the last five years, a lot of that could be related to the system itself not being able to keep up just due to age, wear and tear,” says Livesay.
System struggling during extreme heat: If your AC unit can’t keep up with the heat, it might mean a replacement is on the horizon. “More modern systems can keep up with today’s heat versus older systems, obviously.”
How Much Does a New HVAC System Cost?
The average cost to replace your HVAC unit is around $12,000, but you’ll see average costs range from $7,500 to $14,500. For entire HVAC systems, it’s not unheard of for the bill to reach $30,000.
Common HVAC Financing Options
As much as 80% of HVAC projects in the United States are financed, and there are several ways to go about that.
Contractor Financing / 0% Financing
Pros: No interest during promotional period, often no money down, and fast approvalsCons: Deferred interest can hit at a high percentage, can come with high monthly payments to pay it back before promotions end
One of the easiest ways to pay for your new HVAC system is to use the lender that your HVAC contractor works with. The application is typically easy, and your contractor can charge the project straight to your loan without you having to do much else.
No interest loans are great because you might not have to pay any more than what your HVAC replacement costs. If you can pay it off during the promotional period, often 12 to 18 months, then you won’t have to pay a penny more. However, that rather short period means high monthly payments. “0% sounds great, but when you’re talking about a $10,000 system, and if that 0% plan is for two years or three years, that is a fairly large note that you would have to make every month,” says Livesay.
The other major downside is that once that period is up, interest rates can skyrocket and pose a real issue. Rates of 20% to 30% are not uncommon, and can add much more life to your loan, meaning more payments.
Home Equity Lines of Credit (HELOC)
Pros: Interest may be tax deductible, lower interest rates available and flexibility to only borrow what you needCons: Your home is used as collateral and can take longer to process
The equity in your home can be used to pay for your HVAC. Home equity lines of credit (HELOC) can come with lower interest rates than other types of loans, and the interest you pay might even be tax deductible.
Home equity lines are not free money, and you do need to pay the loan back. HELOCs use your home as collateral, so missed payments can put your home at risk of foreclosure. They also take longer to process and may come with additional fees like appraisal and closing costs.
Personal Loans
Pros: You get to choose your loan servicer, disbursements can be same-day and predictable paymentsCons: Good interest rates depend on credit score and often come with higher interest rates
Instead of finalizing through your HVAC contractor, you can opt for a personal loan through your chosen provider. This can be done through nearly every major bank, and can get you funds quickly, even same-day.
However, your credit score may influence the amount of money and interest rate you can get. This means you could get stuck with a higher interest rate or not enough funds to cover the entire project.
Credit Cards
Pros: Can come with sign-up bonuses, low 0% introductory APR, and can get you funds fastCons: Post-intro APR can be high and can impact your credit score
If you don’t want to take out a loan, you can pay for your HVAC replacement via credit card. If you open a new card, you could take advantage of sign-on bonuses and 0% interest rates. But similar to personal loans, failing to pay your card off quickly can come with headaches.
“Credit cards… give the flexibility of the credit line that you can use over a span of time, but a lot of times they come with a much higher interest rate,” says Livesay. If you don’t pay your HVAC project off during the promotional period, high interest rates can make it hard to pay off your card.
How to Choose the Right Financing Option
The right financing option looks different for each household, so choose yours based on what makes sense. Some factors you might consider include:
Compare monthly affordability: The loan amount and interest rate all play into how much it will cost you each month. The lower the interest rate, the lower your monthly payment. Compare interest rates for various loans, as the one with the lowest interest rate might be your best option.
Don’t focus only on interest rate: Don’t disregard the interest rate, but don’t let it be the only factor that influences your choice. Promotional periods, loan length and down payments should also be considered. For example, “a traditional installment loan over a span of seven years or 10 years is a little bit more flexible than some of the 0% loans,” says Livesay.
Understand the fine print: An HVAC loan that claims $0 down and no interest for a year might seem appealing, but can be misleading. After that year is up, your APR might skyrocket. “You need to understand that it’s deferred interest and there may be a promo period that only applies to the 0%,” Livesay says.
Mistakes to Avoid When Financing an HVAC System
“One of the biggest mistakes that they make is reading their loan documents and [not] understanding what they’re paying for if they choose financing,” says Livesay. You should know the length of your loan, the interest rate, details of any promotional period and who your loan servicer is.
Some easy mistakes you can make when financing a new HVAC system include:
Not reading loan documents: Always read the loan terms so that you understand the fine print.
Not understanding total loan cost: When interest is involved, the cost of your loan is more than the bill. Each month you’ll pay off interest and a portion of the amount you took out.
Paying only the minimum: If you can pay a little more each month, you’ll save more in the end. “I would recommend anyone to pay a little bit more,” Livesay says.
Frequently Asked Questions
Are 0% HVAC financing deals really free?No, 0% HVAC financing deals are not free loans. Most companies offer deferred interest, meaning you get a promotional period where no interest accrues. If you pay your loan off before the interest kicks in, you won’t have to pay any more money than the total cost of the HVAC installation.
Is contractor financing faster?Contractor financing can be quick, and many “can get you financed the same day and potentially get your equipment installed the same day,” says Livesay. Personal loans can be as quick as same-day disbursements, but others can take up to five days.
Should I replace an HVAC system before it breaks?If you want to avoid an HVAC emergency, it’s best to replace it before it breaks down. Once your system hits 10 years old, between 10 and 15 years, you probably should look to see about a new system.
Reporting by Alora Bopray, USA TODAY.
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