Home Improvement Loan Types: A Simple Overview for HVAC Contractors

You know better than anyone how expensive an HVAC replacement can be. But, you might need to deliver some tough news to a homeowner who isn’t prepared to replace their system. After all, a new HVAC system will likely be the most significant expense they will have after their home and car.

We know it’s not always fun to discuss finances with customers, but the reality is that they will likely have questions about how they can pay for a new system. We created this overview to help you understand their home improvement loan options and confidently answer their questions.

While there are several ways a customer can pay for home improvement projects, the most common options are credit cards, home equity line of credit (HELOC), and financing. Let’s talk about the differences.

Credit Card Loans

Anyone who has been in credit card debt understands the risks of using this type of credit. If you haven’t been in that kind of debt, good on you! The benefit of using a credit card is that, assuming customers have a sufficient line of credit, they will know instantly they can pay for the new system, and you can get started on the installation right away. They may also have a 0% interest-rate card, so they won’t incur interest if they pay it off within a specific time period. Credit cards also sometimes offer rewards and/or cash back.

The drawback? If the customer doesn’t have a special rate, interest rates are very high. Additionally, carrying a large balance on a credit card can negatively impact a homeowner’s credit score. So, while credit cards offer immediate access to funds, they also come with significant risks. A safer option is often a Home Equity Loan.

Home Equity Line of Credit and Home Equity Loans

Home equity lines of credit (HELOC) or home equity loans are potential options for HVAC system replacements, assuming a customer has built enough equity in their home. These loans allow homeowners to leverage that equity; the more they’ve built up, the more money they can access

A home equity loan provides a lump sum of money at a fixed interest rate, while a HELOC offers a revolving line of credit with a variable interest rate. The main advantage of these loans is the lower interest rates, which are lower because the loan is secured by the customer’s home. That, of course, means lower monthly payments. Additionally, the interest paid on a home equity loan or HELOC may be tax-deductible if the funds are used to install or upgrade an air conditioning unit or furnace.

However, since the home is being used as collateral, missing payments can be problematic and, in a worst-case scenario, lead to foreclosure. Homeowners should be aware that these loans often come with additional costs, such as appraisal fees and closing costs. Another important difference with home equity loans is that the approval process can take anywhere from two to six weeks, which is not ideal if it is an emergency replacement situation. Nobody wants to go without air conditioning for several weeks during the summer months.

If a homeowner needs a quicker solution or doesn’t have enough equity invested in their home to qualify for a home equity loan, another option is to offer flexible financing. Instead of sending a customer to a bank or lender, you can partner with a financing company so they can apply directly through you.

Flexible Financing

Another home improvement loan option is financing through a third-party lender, like FTL Finance. When you offer this option, customers can apply for financing through your company, eliminating the need to visit a bank. That means you’ll get a quick approval (at FTL Finance, we typically make a loan decision within 15 minutes of receiving the application). While the interest rates are not as low as home equity loans, customers receive faster approvals, simpler paperwork, and a smoother overall experience.

It’s an especially good option for homeowners who need a system installed quickly or don’t have enough equity for a home equity loan. Some lenders, like FTL, use a waterfall lending system, a process where multiple lenders work together to match the homeowner with the best financing option. The homeowner submits one application, if it isn’t a fit, it automatically moves to the next lender, until there is a match. This seamless process allows more homeowners to get approved and provides immediate relief during what is likely a stressful encounter.

No matter which home improvement loan option your customer chooses, their experience will be improved if they understand the loan possibilities and the pros and cons of each choice. When customers feel confident about their options, the decision becomes less overwhelming. We often suggest offering financing early in the sales process to eliminate the worry of “how am I going to pay for this.” Clear communication upfront builds trust, removes hesitation, and keeps your projects moving forward.