AC Unit Financing: What Are Your Options?

Homeownership is a life goal many strive for, and while exciting, it comes at a cost. Upkeep and maintenance of a home is no small expense, particularly when large appliances or internal systems break down. Repairing or replacing an air conditioning unit can be one of the costliest fixes homeowners face.

On average, homeowners spend between $3,736 and $7,194 for a new AC unit, including parts, labor, and installation. The least expensive option is a window unit at $300, but this is often a temporary fix. Most homeowners opt to install a new unit altogether, with a one-range unit averaging $4,000 to $6,000, a two-range unit $6,000 to $8,000, and a variable capacity unit from $8,000 up to $12,000. With these high price tags, it is common for homeowners to seek options when paying for a new AC unit.

Fortunately, there are some simple strategies for a homeowner. The most common, and often most cost-effective, is a home improvement loan. Many financial institutions and online lenders offer personal loans specifically for covering major expenses in the home.

However, if a personal loan is not a viable option, homeowners may also look to credit cards, contractor financing options, or home equity products to help ease the upfront cost. Here’s what to keep in mind when determining the best choice for you.

What to Know About AC Loans

Homeowners often look to personal loans as a financing solution for repairing or buying a new AC unit because they offer a single lump sum with a fixed interest rate and a predictable monthly payment that can be extended several months to several years. Many banks, credit unions, and online lenders offer personal loans specifically for home improvement expenses including AC replacement.

However, there is usually no need to use the home as collateral like home equity financing requires, nor is there a variability of the cost due to a changing interest rate, like there is with a credit card.

Homeowners who want to use a personal loan for home improvement needs can simply apply with the financial institution of their choice. The application process for a personal loan is straightforward, as homeowners are asked to provide information about their income and the reason for the loan.

The financial institution will then do a quick check of credit history and score to ensure the borrower is a good fit. From that point, homeowners can select a repayment term length, typically ranging from one to five years. The interest rate and monthly payment are set based on the term selected and the creditworthiness of the borrower. The funds are then deposited into a bank account or sent via check. The homeowner can then pay for the repair or purchase of a new AC unit with the funds from the loan.

One of the biggest benefits of a personal loan for home improvement expenses is the predictability of payments and interest charges. Because the interest rate is fixed, borrowers know exactly how much they will pay in financing costs to use the loan. Additionally, the interest rate on a personal loan is generally lower than that of a credit card or other financial option. The homeowners with the strongest credit scores and stable income may qualify for the lowest possible interest rate on a personal loan.

Other AC Unit Financing Options

Although a personal loan for home improvement is often the go-to choice for homeowners, other options exist. Credit cards, contractor financing, and home equity products may be used instead of a personal loan, but it is important to know the advantages and caveats of each.

Credit Cards

If you’re thinking of using a credit card to pay for an AC unit replacement or other home improvement project, this method offers flexible financing, which means as the balance is paid down more funds can be used from the available credit line for other expenses. However, credit cards often have double-digit interest rates that make the total cost of borrowing far higher than fixed personal loans.

Homeowners might consider a home improvement store credit card offers, like the Home Depot Project Loan which offers a credit line of up to $55,000 with a fixed APR of 7.99% and repayment up to 84 months. The higher credit line may be a catalyst for overspending, however.

Contractor Financing

Some HVAC contractors offer their own financing that resembles a credit card for qualified homeowners. Interest rates on these options may be higher than a personal loan, but there may also be a promotional period where no interest is charged. It is necessary to read the fine print of contractor financing options before agreeing to finance an AC replacement or repair this way.

HELOCs and Home Equity Loans

Homeowners may also use available home equity – the difference between the mortgage balance and the value of the home – to finance an AC unit or other home improvement project. Home equity loans and lines of credit are available from several different lenders, and they may have lower interest rates than a personal loan.

However, homeowners may also pay closing costs for a home equity line of credit or loan, as well as an appraisal fee to assess the market value of the property. Home equity products also use the home as collateral, which is not always beneficial to the homeowner.

The Bottom Line

Expensive home improvements like an AC unit repair or replacement can throw a wrench in a homeowner’s overall financial picture. Fortunately, having the option to finance this major expense with a personal loan could be helpful in spreading out the cost without breaking the bank.

Homeowners should consider their ability to qualify for a personal loan for home improvement, and compare this option with other financing solutions before making a decision that best fits their needs.