Key Takeaways
- Types of HVAC financing include through contractors, personal loans, credit cards, and HELOCs.
- When comparing HVAC installation financing offers, review types, terms, and interest rates.
- Watch out for red flags, such as hidden fees, high-pressure sales tactics, and unclear terms.
A new HVAC unit can be a major expense. While average HVAC installation costs range from $5,000 to $12,500, homeowners may pay nearly $40,000 for systems in homes that exceed 3,500 square feet. As a result, many consider financing instead of paying out of pocket.
Contractors often offer financing through their lending partners to qualifying customers, but the terms vary widely. Before signing on the dotted line, carefully compare financing offers for HVAC installation and read over the fine print. Each loan, credit card, or credit line will have different term lengths, interest rates, payment structures, and fees. You want to determine the best choice for your budget and new HVAC unit.
In this article, we explore several types of HVAC financing offers, provide advice on comparing your options based on your goals and credit score, and outline some red flags and hidden fees that might mean you should go with another lender.
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This site receives compensation from the companies featured in this listing, which may impact where and how products appear. This listing doesn’t feature all companies, products, or offers that may be available.
Types of HVAC Financing Options
While window AC installation starts at just $150, you could pay upward of $14,000 for central air. Financing can make the large purchase more affordable. You might want to go with your HVAC company’s third-party lender for convenience, but you should also consider other options.
Financing Through HVAC Contractors
One of the most convenient ways to finance your HVAC installation is through the contractor. Not all technicians offer the option, but those that do have third-party lender partners, such as GreenSky or Synchrony, that offer fixed-rate installment loans to customers.
Borrowers apply for a loan amount through the contractor and their partner, with a set number of payments and repayment terms. Interest rates vary based on credit and lender, but many HVAC lenders offer 0% or low-interest promotional periods to qualified borrowers.
Personal Loans
Personal loans are another popular way to pay for a new HVAC system, as you’re not restricted to the contractors’ partners. It’s often easy to apply through your current bank or credit union, as they already have access to your financial information. Some lenders even offer more favorable rates and terms to borrowers who already bank with them.
However, you’re welcome to apply to any lender. As with loans through HVAC contractors, these personal loans come with fixed interest rates and set repayment terms. You’ll need to qualify, too — they usually require good to excellent credit.
Home Equity Loans or HELOCs
Home equity loans or home equity lines of credit (HELOCs) are similar — they both let you borrow against your home’s equity — but they work differently. Equity is the amount your home is worth minus any existing liens, such as the mortgage.
Often called second mortgages, home equity loans are lump-sum loans with fixed interest rates, set repayment terms, and consistent minimum monthly payments. Lenders typically allow qualifying customers to borrow up to 80% of the equity they have in their home, and borrowers begin paying interest on the full amount from the first day. If you fall behind on payments or can’t pay back the loan, the lender could foreclose on your property and take ownership of the house.
HELOCs are credit lines, typically open for five to 10 years, that allow customers to borrow as needed up to a fixed amount. You pay interest on the total amount you borrowed. Once the set open period has passed, you start making payments on the credit line.
HELOCs typically have lower adjustable interest rates than home equity loans, but the loan is better if you need the lump sum right away. Compared to other financing options, both have longer approval processes and come with higher risks. Since you’re putting your home up for collateral, the lender could take ownership of your house if you fall too far behind on payments.
Credit Cards
Homeowners can also use credit cards to finance the purchase of a new HVAC unit. You can use an existing credit card you already own or apply for a new one. Look for benefits — several offer cash back and points specifically for home improvement purchases.
However, credit cards usually have a higher annual percentage rate (APR) compared to other options, but you could score a 0% promotional rate for six months to several years, which makes it a smarter choice.
In general, you shouldn’t use a credit card for large purchases unless you can pay it off quickly or before the promotional period ends.
Government Programs and Utility Rebates
Federal government programs, state financing programs, and utility rebates help make some HVAC purchases more affordable, but they often come with strict eligibility rules.
On the federal level, homeowners can receive federal tax credits and save up to $1,200 on energy-efficient home improvements, including central air conditioners (or you can save up to $2,000 for heat pump installation). You can also contact your utility company to see if they offer any HVAC incentives.
Several states offer low-interest loans and incentives for energy-efficient upgrades. For example, the Florida Property Assessed Clean Energy (PACE) program helps homeowners secure funding for HVAC upgrades, air quality improvements, and other energy-efficient upgrades. The New York State Energy Research and Development Authority (NYSERDA) offers a variety of programs that provide funding for HVAC systems. Additionally, the state has access to the Inflation Reduction Act (IRA), which offers rebates, tax credits, and low-cost financing for qualifying energy-efficient upgrades.
What To Look For When Comparing Financing Offers
In addition to the principal — the original amount of money you’re borrowing — each financing offer will include these various components:
- APR: The annual percentage rate highlights the total annual cost of a loan, including the interest rate, fees, and related expenses, such as origination fees and closing costs. You’ll generally pay more in the long run if the loan has a higher APR.
- Term length: The term length refers to how long you’ll be repaying the loan, ranging from months to decades. Shorter terms mean you’ll pay less in interest over time.
- Monthly payment amount: Your financing offer will include the minimum monthly payment, which pays down the principal and interest. Longer term lengths result in lower monthly payments, but you’ll pay more in interest.
- Fees: Financing options come with different fees. For example, personal loans may include origination fees, while home equity loans come with closing fees.
- Penalties: Late fees and prepayment penalties vary depending on the lender.
- Promotional financing: Several types of financing offerings come with promotional financing periods for qualifying applicants, such as 0% interest or reduced APR for a set period and installation rebates.
Your offers may also explain collateral, down payments, amortization schedules, balloon payments, default provisions, and other conditions, depending on the type of financing.
How To Choose the Best HVAC Financing Option
To choose the best financing option, we recommend collecting financing quotes from three HVAC contractors and at least one external lender. Compare the APRs, terms, payments, and other factors. Additionally, you should:
- Understand your credit. Homeowners with higher credit scores generally qualify for better rates, including 0% APR promotions. Those with lower credit scores may need a co-signer or an energy efficiency assistance program to get more affordable rates.
- Determine the long-term cost. Calculate how much you’ll pay in total by the end of the loan. If you can pay it off during a 0% promotional period, you could save hundreds or thousands of dollars. For some, minimizing interest could be more important than short-term affordability.
- Consider your budget. Review the entire repayment schedule to determine your short and long-term budgets. How much can you afford to pay each month without financial stress? Will you still have enough to cover emergencies?
- Read reviews. Even if an HVAC company has stellar reviews, it doesn’t mean its lender does. Check reviews on trusted sites, such as Google Reviews, Trustpilot, and the Better Business Bureau (BBB).
Offers and Red Flags To Watch Out For
To avoid surprises, watch out for these conditions and red flags. Always read over contracts carefully before signing and know when to walk away from an offer.
“Same-As-Cash” Financing With Balloon Payment
Some lenders pair low monthly payments with balloon payments, which are large sums due at the end of the term. Your contract should clearly outline whether you have a balloon payment and, if so, the amount.
While this isn’t inherently a red flag (and it could benefit some homeowners), it’s essential to be aware of how much you owe and when, so you can budget accordingly. You’ll run into penalties if you’re unable to make the final payment.
Long-Term Offers With Compound Interest
Long-term loans with high cumulative interest make it difficult to get out of debt. At the end of the term, you’d have paid significantly more than the original loan amount. Early payments also go toward the interest, which slows down how much you’re paying on the principal balance. As a result, it’s hard to get ahead of payments and meet other financial obligations.
High-Pressure Sales Tactics
You might hear, “This deal expires tonight,” or “I can offer 25% off if you sign today.” Walk away from contractors and lenders who use manipulative, high-pressure sales tactics to create a sense of urgency.
Trustworthy HVAC technicians and lenders want you to compare your options and understand the terms. Loan offers typically expire after several months, not 24 hours.
High or Deferred Interest After Promotional Periods
Many financing options come with promotional periods for qualifying individuals. However, don’t ignore what happens after the promotion ends. You might be hit with “deferred interest,” which means if you don’t pay the entire loan off by the end of the promotion, you’ll face retroactive interest on the full amount.
In other cases, you might see a loan with 0% interest for 12 months but find that the APR jumps drastically after that period. As a result, an offer with a lower overall APR but no promotion could make it a better option if you can’t pay off the money in the 12 months.
Unclear Conditions or Hidden Fees
Transparency is key. Consider going with another lender or HVAC company if you notice these red flags:
- The lender doesn’t clearly answer questions. If the lender seems unable or unwilling to answer your questions, they may be trying to hide something. They should fully inform you about your loan or line of credit.
- You find hidden or undisclosed fees. Keep an eye out for processing, application, or dealer fees that add hundreds or thousands of dollars to the loan total.
- The HVAC installation cost is much higher than expected. Some HVAC contractors raise prices if they know you’re using their financing program. Request quotes before inquiring about financing.
- You don’t know who the lender is. If you opt for contractor financing, the AC company should let you know who the actual lender is well before you sign.
FAQs About Comparing HVAC Installation Financing Offers
Is it better to finance through a contractor or my bank?
Whether it’s better to finance through a contractor or your bank depends on several factors, including your credit score, your contractor’s lending partner, and the type of financing offered.
You should compare financing options through your potential contractors and at least one external institution before signing a contract. Review APR, terms, monthly payments, promotional periods, and more to determine the best loan, credit card, or program for your needs.
In addition, you should only work with a contractor’s financing partner if they’re trustworthy and reputable. As you did when vetting HVAC professionals, read lenders’ reviews on trusted review sites, such as Trustpilot and the BBB.
What credit score do I need for HVAC financing?
The required credit score for HVAC financing depends on the lender and the type of financing. Typically, you need a “good” credit score (670 minimum) to qualify. A higher credit score generally means you can borrow more for a lower interest rate. You might also qualify for special promotional periods and terms.
However, a credit score below 670 doesn’t mean you can’t qualify for financing. Some lenders offer no-credit-check or bad-credit programs, but these options usually come with higher interest rates and fees. You can also explore government programs and utility rebates that may make replacing your HVAC system more affordable.
Can I use a HELOC for HVAC replacement?
Yes, you can use a HELOC for HVAC replacement if you qualify. A HELOC uses your home as collateral, so you borrow against the equity of your home. The more equity you have, the more you can borrow, but most lenders cap the amount at 80% of your total equity.
More flexible than home equity loans and other personal loans, a HELOC is an open line of credit that you can borrow from for a set period. Repayment begins after that time frame. As a result, you can use the money to pay for an HVAC replacement and other home improvements as needed. Since the line of credit stays open between five and 10 years and you only pay interest on the money you borrow, it’s like having emergency credit in your back pocket to cover unexpected costs.
However, while HELOCs tend to have lower interest rates than other options, they’re variable. If the market changes, you could end up paying a higher APR. In addition, failing to pay back the borrowed money could result in the lender foreclosing on your home.
Are government incentives available for energy-efficient HVAC systems?
Yes, government programs and incentives are available for energy-efficient HVAC systems. For example, homeowners can receive federal tax credits of up to $2,000 for qualifying heat pumps or up to $1,200 for central air conditioners through the Internal Revenue Service (IRS).
State and local governments may also offer rebates and other incentives for energy-efficient HVAC replacements. We recommend using the Database of State Incentives for Renewables and Efficiency (DSIRE) to explore options by entering your ZIP code.
Additionally, some utility companies offer incentives to their customers. You can visit their website or contact them to learn more.
