AC Unit Financing Options

Lauren WardUpdated August 20, 2022

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

A central AC unit is a major purchase, typically costing between $3,200 and $7,800. As a result, many homeowners decide to use financing when buying a new AC unit for their home. But with so many lending options available, which one is best? To help you choose, we’ve put together a guide to some of the most popular AC unit financing options—and the pros and cons of each.

HELOC for Air Conditioning (AC) Unit Financing

If you’ve owned your home for a few years, you may have built up some equity in it, which you can use to your advantage. To access this equity, many homeowners turn to HELOCs, also known as a home equity line of credit, when financing an AC unit. A HELOC is a type of revolving credit that is secured with your home’s equity. Because a HELOC is like a credit card, the monthly payments vary depending on the interest rate and how much you’ve borrowed. The maximum amount of money you can borrow with a HELOC is based on the amount of equity you have in the home. Financing central AC units with HELOCs can be a smart choice because of the possible low interest rate and tax advantages you may receive. Just make sure you only use what you need. Even though you’re getting a HELOC as a loan for an AC unit, you may be tempted to use it for additional expenses. But if you default on payments, the lender could foreclose on your home.

Pros of HELOCs	Cons of HELOCs
Borrowers may receive a lower APR than they would with other loans	The temptation to use more than is needed is too great for many homeowners
Interest paid on money borrowed from the HELOC may be tax deductible	Home is used as collateral to secure the loan
Many HELOCs come with multiple payment options	HELOCs come with variable interest rates
Only pay interest on the money you use	May require additional costs and fees.

Credit Cards for AC Unit Financing

New central AC unit financing can be done with a credit card if you qualify for a high balance card. Plus, if you can pay it off quickly and avoid interest, it’s possible to receive a large amount in rewards depending on the card.

Pros of Credit Cards	Cons of Credit Cards
Quick and easy to use	May have high interest rates
A big purchase can help you earn rewards	Could affect your credit utilization ratio, which might impact your credit score

Recommended: Top Credit Cards

Direct Financing for AC Units

You may also be able to get direct financing for a central AC unit through an HVAC company. However, the interest rates may be higher with direct financing, and there might be additional costs and fees tacked on. Moreover, even if you finance directly through an HVAC manufacturer, it’s possible you’ll still need to find a contractor to replace the AC unit. It’s important to understand each and every aspect of your AC unit transaction when working directly through an HVAC company.

Pros of Direct Financing	Cons of Direct Financing
Borrow the exact amount needed to purchase the AC	Interest rates may be higher than other loan alternatives
Everything is done through the same company — making it fast and easy	May come with additional costs and fees

Home Equity Loans for AC Units

Home equity loans can be used as a type of home improvement loan. Because of this, they can be a good choice when considering financing for an AC unit.When used as a loan for central AC units, home equity loans come with a few advantages: They usually come with lower interest rates, and they can also help lower your tax burden.That said, you’ll need a large amount of equity to qualify for a home equity loan. Plus, you may need to pay to have an appraiser come to your house and estimate its worth before you’re approved. And if you stop paying off the loan, you could lose your house.

Pros of Home Equity Loans	Cons of Home Equity Loans
Potential to receive a lower interest rate compared to other lending options	Can take a while to receive a credit decision from the bank, which can be problematic if you need an AC unit quickly
Like HELOCs, you may be able to deduct any interest you pay on the home equity loan from your taxes	It’s possible to lose your house if you stop making payments

Personal Loan for AC Unit Financing

The personal loan definition: Money loaned by a lender to a borrower that is paid back with fixed monthly payments. The money can be used for anything except business expenses, college tuition, and a down payment for a home. Because personal loans have such a wide variety of uses, they can be a smart choice when purchasing a new central AC unit. Just be aware that the requirements for a personal loan can vary from lender to lender. For example, some may require specific credit scores, while others may have strict collateral requirements. Be sure you understand the pros and cons of personal loans:

Pros of Personal Loans	Cons of Personal Loans
May not come with a collateral requirement	Requires a higher payment than many credit cards
Borrowers typically receive their money fast	Can have a long application process

Recommended: Unsecured Home Improvement Loans

Exploring Personal Loan Options

Central AC unit financing can be done in a multitude of ways, such as home equity loans, HELOCs, credit cards, and personal loans. Each lending option comes with its own set of pros and cons, so be sure to review the terms and requirements carefully and weigh all your options. If you’re considering a personal loan for an AC unit, you can easily see personal loans interest rates through Lantern by SoFi. With a single application, you can compare multiple loans quickly to help you find the right lending option for your needs.

Frequently Asked Questions

What is the average interest rate on AC unit financing?

When is it right to finance an AC?

What are your options for AC unit financing?

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Photo credit: iStock/KangeStudio

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About the Author

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.

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