HVAC Leasing: What Is It and How Does It Work?

No one plans for their HVAC system to go kaput. But the universe has a funny way of killing the AC during a heat wave and the heat right before you’re supposed to host a holiday party.

If you’ve ever had a broken heater in winter, you know a functioning HVAC unit isn’t something you can live without. Unfortunately, those don’t come cheap. A new system could run homeowners anywhere from $5,000 to $12,000, depending on size, brand, and the home’s layout.

But here’s the kicker: 56% of Americans told Bankrate they don’t have enough saved to cover even $1,000 in unplanned expenses. In fact, a little over one-fourth of those folks would need to cover a surprise bill with a credit card or loan.

But what about HVAC financing for homeowners with bad credit scores? For them, HVAC leasing might be a good option. With that in mind, let’s start by covering some of the ins and outs of HVAC leasing.

What Is HVAC Leasing?

On the most basic level, leasing is just another way to finance an HVAC system. Like leasing a car or a smartphone, HVAC leasing is a three-party relationship:

• The financial party (or lessor) owns the system and pays the contractor.
• The contractor installs and services the HVAC system.
• The homeowner (or lessee) pays for the system in monthly installments.

A lease can last 10 or more years, so this is a longer relationship than traditional financing.

Who’s a Good Candidate for HVAC Leasing?

Increasingly, homeowners want contractors to offer customers financing to decrease the financial burden of HVAC maintenance and replacement. There are several solutions, but some — like fixed-rate installment loans — favor individuals with higher credit scores.

HVAC leasing is an accessible option for homeowners with a poor credit history who may have a hard time getting approved for a loan. Leasing programs have more lenient eligibility requirements than traditional financing. Instead of running a credit check, the lessor simply needs proof of homeownership, payroll earnings, and an active bank account.

Why Would Someone Decide to Lease Their HVAC System?

Poor credit history and little credit history are two reasons a homeowner might consider leasing their HVAC system. However, HVAC leasing has other benefits that some may find appealing.

For instance, HVAC leases typically cover repairs and routine maintenance, meaning homeowners won’t be on the hook for service. With equipment prices rising, spreading out monthly payments over a longer period and enjoying zero-cost maintenance is certainly appealing.

What Contractors Need To Know about HVAC Leasing

HVAC leasing benefits more than just homeowners. As a contractor, you’ll be able to close more deals and offer your services to a bigger pool of customers. That said, educating yourself on the finer points of HVAC leasing is important so you can properly advise your customers and protect your business.

For instance, do you know the difference between HVAC leasing and HVAC lease-to-own? There’s a good chance your customers don’t, so you must be ready to make this distinction when offering financing to customers. Here’s a quick breakdown:

• When a homeowner enters an HVAC leasing contract, they don’t own the HVAC system. Instead, they agree to pay the lessor a set monthly fee to use it for a fixed period. At the end of the lease, the homeowner can decide whether to pay a fee to keep the system or enter a new lease.
• An HVAC lease-to-own contract is similar to a traditional lease, except the customer will own the HVAC system at the end of the contract. In that way, lease-to-own is more like an installment plan.

Tricky terms aside, the biggest elephant in the room is interest. If you’re used to offering more traditional financing options, the higher interest rates on HVAC leasing programs may seem off-putting. Understandable. But as with all types of customer financing, higher-risk credit comes with higher interest rates. It’s common for contractors or financing platforms to only offer HVAC leasing if the homeowner can’t qualify for other loan options.

Finally, it’s important to get familiar with your financing partners before offering leasing options to your customers. At FTL Finance, for example, we don’t offer HVAC leasing directly, but some of our industry partners, including OPTIMUS, do. We’re more than happy to connect our contractors with partners or programs that can help them get more approvals for their homeowners. If you’d like to learn more about HVAC financing and our partner lenders, check out our program options.