If your furnace is on its last leg, planning for a replacement is important. It isn’t something you should wait for your furnace to break down. Since the cost of a new furnace is fairly expensive for most homeowners, many are caught off guard and need financing to help afford the purchase. We’re going to go over some of the most popular forms of financing below to help you become better informed about the options that are available to you.
Top Reasons To Consider Furnace Financing
There can be a variety of reasons why you may want to choose to finance a furnace replacement service. By far, the most obvious is to spread out the total cost of the replacement over time. Homeowners can benefit from a manageable, fixed monthly payment compared to paying the entire price upfront. Another reason you may want to consider financing is that it can potentially give you access to purchase a more expensive, high-efficiency furnace. These furnaces cost more upfront but can save you a bundle on annual energy bills. One less common reason to consider financing is that some forms of financing can allow you to deduct the interest on your furnace financing each year.
HVAC Installer
One of the most common forms of financing is to go through your HVAC installer. While most companies don’t offer in-house financing, many have a lender to which they refer all their clients. These lenders are typically available to a wide variety of customers, regardless of credit rating. It’s very common for these lenders to provide customers with added incentives, such as 0% financing for a year. This type of financing can be set up as a line of credit or an installment loan based on the preference of the financing provider.
Personal Loan
Another option for financing your new furnace purchase is through a personal loan. This type of loan can be obtained from a big bank, an online bank, or even a local credit union. In most cases, this type of loan will be unsecured and based on your creditworthiness and income. With a personal loan, you’ll have an installment plan set up with a fixed rate and a fixed monthly payment amount.
HELOC
A HELOC, known formally as a home equity line of credit, and a home equity loan are other financing options. With this style of financing, you’ll use the equity that you have built into your home to help secure the loan for your new furnace. Most lenders will require that you have at least 15% equity in your home. A HELOC is treated more like a credit card, whereas a home equity loan is treated more like an installment loan with a fixed payment. Both of these can be desirable options because they typically come with lower interest rates than other types of financing available to you.
Credit Card
Another notable financing option is to use a credit card. This is typically not the best option for most homeowners because of the high interest rate associated with credit cards and the high purchase price of a furnace replacement. However, it’s not uncommon for homeowners who have access to a credit card with an introductory 0% or low interest rate to consider using this financing option.
If you’re able to repay the total cost of the furnace replacement before the introductory period ends, you can enjoy an interest-free purchase. However, it’s important to note that your HVAC installer may require you to pay an extra fee for using a credit card. This can increase the overall purchase price of your new heating system.
Financing Features To Consider
When trying to decide between the different financing options available to you, there are many features you’ll want to consider. One of the more obvious ones is the interest rate for the financing method. This is typically given as an annual percentage rate, or APR for short. This represents the total yearly cost of borrowing the funds in the form of both the interest rate and fees. Getting a financing option with a low or no interest rate can help you save a bundle on the total cost of financing your new system.
Another notable factor to consider with any financing option is its term length. This describes how long you’ll need to make payments on the loan until it’s completely paid off. Opting for a short-term loan typically means a higher monthly payment. However, if you’re looking for a low monthly payment, you’ll want to look for a longer loan term. Be sure to choose a loan term that offers a payment comfortably within your monthly budget.
All forms of financing have some sort of fee. Some of the most common include application fees, origination fees, and prepayment penalties. If possible, choose a financing option that doesn’t require you to pay an application fee to see if you qualify. Choosing an option with lower origination fees can help you save on the total cost of your furnace financing. Be mindful of prepayment penalties, as these can cost you if you pay off the loan for your new furnace before the stated minimum timeframe.
Another financing feature to consider is special promotions. You’ll most likely find these with HVAC installers, as most of their lenders offer promotional financing for a set period. For example, they may offer a 0% interest rate for the first year of financing. It’s important to factor this into the total cost of your loan to see how much money you can save.
State Energy Office Programs
If you are part of a low-income household, you may find it difficult to secure a form of financing that fits within your budget. Fortunately, the government does offer some home improvement financing for those with low income. It’s best to check with your state’s Energy Office to determine what programs are available and which ones you qualify for.
How Does Your Credit Score Affect HVAC Financing?
When it comes to obtaining any sort of financing for your new furnace purchase, your credit score is going to play an important role. In general, those with a lower credit score will pay higher interest rates on their financing than those with a higher credit score. This is the trade-off the lender uses for providing financing to help secure its financial interests in the event that you default on the loan.
Those with less-than-perfect credit may find it challenging to get approved for a personal loan for the purchase of a new system. Many of these individuals find it easier to get approved for a HELOC or home equity loan because there is collateral backing the loan.
Reliable Furnace Replacement Service
O'Brien Heating & Air Conditioning offers reliable furnace replacement service in the Drexel Hill, PA, area. We can also help with all your heating, air conditioning, indoor air quality, commercial HVAC, heat pump, and water heater needs. Call us today to schedule your next heating service consultation.
