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AC Financing Options for a New Air Conditioning Unit

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AC financing options (which include loans, lines of credit and credit cards) help you afford a new air conditioning (AC) system or maintenance for your current one. These AC financing options could be especially useful if you don’t have money saved, but will need a cooling unit in the short term — perhaps to get through summertime in a warm climate, for example.

There are also a variety of governmental rebates and tax credits that could drive down the cost of an AC unit before you resort to borrowing.

Here are some questions and answers about the cost of a new AC unit, should you come across that sudden expense, and how to finance it.

How much is a new AC unit?

The cost of a new AC unit depends on a few factors:

  • Type of unit
  • Cost of installation
  • Size of your home

The AC unit itself will typically cost between $1,000 and $5,000, according to home renovation resource HomeGuide. However, the report also says that people spend $1,500 to $2,500 on average for the labor needed for installation. Those costs can rise as high as $10,000 or more if the installation is extensive or complicated.

That’s a significant amount of money for many people, and paying out of pocket may not be an option for everyone. If that’s the case for you, financing through a loan or other credit product may be the best option to keep you and your family out of the heat with a new air conditioner.

Where can you find AC financing?

Ways to finance a new AC unit

Financing optionAverage ratesWho qualifies
Home equity loan5.28% to 5.82% interest rateTypically those with a credit score of at least 620 and a debt-to-income ratio below 43%
Home equity line of credit5.61% interest rateThose with a credit score of 680 or higher
Personal loan10.73% to 37.09% APR* or higher, depending on creditIndividuals with a credit score of 640 or higher (though some lenders will accept a lower score), a history of on-time payments and a steady income
Contractor/retailer financingDepends on special financing promotions, but can be as low as 0% APR for a number of months**Varies based on the contractor, retailer or lender
Credit card19.55%Varies by card, but balance transfer cards with 0% introductory rates typically require credit scores of 670 or above

* APR, or annual percentage rate, represents the interest rate and other fees. It is a more accurate measure of your cost for borrowing.
** If you have a remaining balance when the offer ends, you’ll typically be charged interest from the purchase date.

Home equity loan or line of credit

A home equity loan is a second mortgage that allows you to borrow against the equity you’ve built up through paying off your mortgage. Interest rates are typically lower than you’d find with a credit card or personal loan, which can help you save money in the long term.

One benefit of a home equity loan for this purpose is the ability to deduct the interest you pay on the loan from your taxable income. Just be aware that your borrowing is generally limited to 85% of the equity you’ve accumulated.

In contrast, a home equity line of credit is similar to a credit card — it’s a revolving line of credit that uses your home’s equity as collateral, and you’ll pay interest on whatever amount you use. HELOC interest rates are typically variable, with borrowing usually capped at around 80% of your available equity.

To qualify, you’ll generally need a loan-to-value ratio of 85% or less. But, on top of the interest rate, you’ll have to pay closing costs (typically 2% to 5% of the overall loan) — so you’ll have to consider those costs when figuring out the true cost of borrowing.

ProsCons

  Relatively low APRs, since your home serves as collateral

  Possible to deduct interest from your taxes

  Equity in your home is required

  Potential appraisal and loan origination fees

  Longer application process than with personal loans

  Your home could enter foreclosure if you fail to your loan

Personal loan

LightstreamUpstartSoFi
APR3.99% - 19.99%4.37% - 35.99%6.99% - 21.78%
Terms24 to 144 months36 or 60 months24 to 84 months
Loan amount$5,000 to $100,000$1,000 to $50,000$5,000 to $100,000
Origination feeNo origination fee0.00% - 8.00%No origination fee
Minimum credit score requirementNot specified600680

Personal loans are another AC financing option you may want to consider. Those who qualify for these lump-sum installment loans can typically get terms ranging from 12 to 144 months, with rates depending on credit.

There are options if you have bad credit, too — though those are usually more expensive. Typically, lenders consider factors like your income, credit and current debt amounts to determine if you qualify and, if so, what the terms would be for your loan.

ProsCons

  Variety of repayment term options

  Great variety of lenders to shop around rates

  Lower rates than credit cards

  Easier to qualify than home equity loans

  Lower rates are reserved for borrowers with at least good credit

  Longer repayment terms could significantly increase the cost of your AC unit, thanks to accruing interest

Contractor/retailer financing

SearsHome DepotTrane
What it isSpecial financing when you charge the expenses to your Sears cardConsumer credit card or loan optionThird-party loan via Wells Fargo
APRVariable APR: 7.24% - 25.24%. Non-variable APR: 5.00% - 26.49%

Card: 17.99% - 26.99% variable

Loan: 7.42% fixed and up

0% APR for 72 months; 28.99% afterward
Loan terms18 months special financing — any remaining balance after that time would be charged full interest from the date of purchase

Card: Up to 24 months special financing during promotions, otherwise six months special financing

Loan: 84 months

Not specified
Loan amount$1,500 or more

Card: $299 or more

Loan: Up to $55,000

Not specified
Minimum credit score requirementNot specifiedNot specifiedNot specified

Some retailers and contractors offer financing options, like a store credit card that comes with special financing and loans; these may also be offered through a third-party lender. If you can get a low promotional rate (or even a 0% APR), and pay off the balance before the promotional period ends, you could minimize your costs. If you don’t pay off your balance before the offer expires, you could be hit with deferred interest from the purchase date.

Many of these retailers don’t advertise their credit requirements, so it’s difficult to know if you’d qualify. If interested, be sure to check out each retailers’ fee schedules in addition to their rates. That way, you’ll get a more accurate picture of the total costs.

ProsCons

  Potential for working with one company throughout

  Simpler to choose your loan amount

  You still might be passed off from a retailer to a third-party lender or from a manufacturer to its dealer

  Rates and fees can be higher than you’d find from other AC unit financing options (after introductory promotional periods)

Credit card

The simplest AC financing option might be to use the plastic already in your wallet, though it’s likely your current credit card’s APR is in the double digits and far beyond what you’d pay on installment loans. Still, your current card could be all that’s needed if your AC unit needs simple repairs, and you can afford to tack that cost onto your normal monthly bill.

For larger AC expenses, however, you might consider using a balance transfer credit card with a 0% introductory rate, particularly if you can realistically afford to pay off the AC unit before that promotional period ends (typically up to 21 months). You’ll also need at least very good credit to qualify for balance transfer cards with the best terms.

ProsCons

  Ease of use

  0% introductory APR on balance transfer cards

  Typical APRs (on most cards, and on balance transfer cards after the promotional period) are the highest among AC financing options

  Very good credit is needed to qualify for most balance transfer cards

  Your credit score could be put at risk, particularly if you have to open a new card or rack up a big bill on an existing account

Is there air conditioning financing for bad credit?

Secured loan: A secured loan is an installment loan that requires you to put down something of value as collateral. This can enable those with damaged credit to get access to funds; however, defaulting on the loan could mean losing your collateral. In general, it’s best to only use that which you can afford to lose and make sure the repayment schedule is suited to your financial situation.

Payday advance: A payday advance is when you borrow against your future earnings to meet your financial needs now. In some cases, you can do this through your employer to avoid paying the high interest that comes from a payday loan.

You may be limited in the amount that you can advance, so it likely won’t be enough to cover the full costs of repairing or replacing your air conditioning unit — plus, doing this can be risky since it would decrease your future paycheck.

Payday alternative loan: These loans, offered by credit unions exclusively to their members, are an alternative to costly payday loans. Typically these are smaller loans with shorter terms than you would find with a traditional loan — so if you require more than $1,000 to finance your new air conditioning unit, you may need to consider other options.

Lease-to-own: If you can’t qualify for typical financing, you might be offered lease-to-own as an AC financing alternative. These programs can help you buy your AC unit in the short term while paying for it over a longer period, perhaps two years in some cases. Just be wary of fees associated with lease-to-own.

To protect yourself against a predatory AC financing program, calculate the cost of buying the unit versus the cost of leasing before buying it. If lease-to-own proves to be much more expensive, you’re likely better off budgeting and saving up, or improving your credit to qualify for standard AC financing options.

FAQs: AC financing

How much does it cost to repair or replace an AC unit?

It costs $2,500 to $7,500 to replace an AC unit, including installation costs, according to HomeGuide. But that will depend on factors like the size of your home and the type of unit you purchase. Small repairs, on the other hand, can range from $150 to $650, while larger repairs may cost up to $2,500 or more.

Do HVAC companies offer financing?

Some retailers and contractors offer financing options, like store cards and loans. In some instances, these loans are made available through a third party.

Is a loan worth it for a new AC unit?

The least expensive option will always be to pay with cash and avoid debt. However, since the total costs can be up to $10,000 or more, a loan or other financing option may be required to help cover the price of a new AC unit. If you can wait a few months and save up, you could lower your costs by reducing the amount you borrow. But if you can’t wait, a loan can be a good way to shorten your timeline.

Can you qualify for AC financing with bad credit?

It depends on the kind of financing. For example, certain personal loans can help people with bad credit access the funds necessary to replace their air conditioner or HVAC system. But in general, the best rates and terms will go to those who have the highest credit scores, or to borrowers who have creditworthy co-applicants or cosigners.

Are there any grants for air conditioning units?

There are local, state and federal money-saving programs that may provide assistance to cover the costs of a new AC unit, including the following:

  • Some manufacturers, like Carrier, allow you to search for local rebates and tax credits specific to certain products and your ZIP code.
  • You can also learn about AC unit tax credits for primary residences via energystar.gov. In January 2022, there was a $300 tax credit available on the purchase of a central air conditioning system.
  • The federal government’s Low Income Home Energy Assistance program can help with weatherization and energy-related minor home repairs to those who qualify for aid.
  • If you take out a HELOC or home equity loan, you can deduct the interest you pay and decrease your taxable income for more savings.
  • AC unit manufacturers and dealers may also offer special discounts or rebates. Don’t be shy about negotiating.
 

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