Heat wave relief: How to pay for a new air conditioning system

A record-breaking summer heat wave is plaguing the Pacific Northwest and New England — places where many homes aren't outfitted with central air conditioning systems. With temperatures well over 100 degrees, turning on a fan and opening the windows just doesn't cut it. 

If you're one of the millions of Americans impacted by the unprecedented heat wave, you might be considering installing a new AC system or upgrading your old one. However, the cost of a new air conditioner may prohibit you from seeking much-needed relief.

New, energy-efficient heating and cooling systems can cost up to $8,000, according to Angi, a home pricing estimator. But that doesn't even account for the installation or replacement of your current AC equipment, which can cost up to $8,500. Installing a new air conditioning system in a home that doesn't currently have central air costs about $6,500 to $14,000 on average.

Thankfully, there are many ways to finance an HVAC system installation, from personal loans to cash-out mortgage refinancing. Keep reading to learn about your payment options, and visit Credible's online marketplace to compare a range of financial products so you can make sure you're getting the best rate on your HVAC loan.

REFINANCING FOR HOME IMPROVEMENTS: HOW DOES IT WORK?

3 ways to finance AC system installation

Most Americans don't have enough money to cover a $1,000 emergency expense, so it's no surprise that homeowners turn to loans and credit cards to pay for home improvements like a new HVAC unit. While some dealers offer financing plans, these typically come with high interest rates and may not be your best option. You should also consider your alternatives, like:

1. Personal loans
2. Cash-out mortgage refinancing
3. 0% APR credit card offers

SHOULD YOU TAKE OUT A PERSONAL LOAN FOR A HOME IMPROVEMENT PROJECT?

1. Personal loans

A personal loan is a lump-sum loan that's repaid in fixed monthly installments over a set period of time, typically a few years. Personal loans are unsecured, which means they don't require you to use your home as collateral. 

Compared with dealer financing, personal loans may come with a lower monthly payment and fixed interest, as well as a more transparent financing agreement. Personal loan interest rates are typically set according to your credit score and debt-to-income ratio, so make sure your credit score is good or better before applying. That's a score of 670 or higher, according to the FICO model. 

If you're in the market for a personal loan, it's important to shop around for the best possible interest rate for your situation so you can secure a low monthly payment. Many lenders let you prequalify, which shows you your estimated interest rate without affecting your credit. 

Take the hassle out of personal loan prequalification by utilizing an online loan marketplace like Credible. You can compare personal loan rates across multiple lenders at once by filling out one form. 

HOW TO PAY FOR A RENOVATION WITHOUT USING YOUR HOME EQUITY

2. Cash-out mortgage refinancing

Home values are at record highs, which means you may have extra home equity compared to just a few years ago. Plus, mortgage refinancing rates are hovering near record lows, making a cash-out mortgage refinance a cost-effective air conditioner system financing option.

A cash-out refinance lets you replace your mortgage with a new mortgage at a lower interest rate. Ideally, you'll be left with a lump sum of cash after paying off your current mortgage and closing costs. In contrast, a home equity loan or home equity line of credit (HELOC) is taken out in addition to your existing mortgage.

Keep in mind that your new home loan may have a new payment schedule and monthly payment, so make sure you have the room in your budget to account for these changes. You can use a mortgage payment calculator to see how much your new monthly payments will be.

If you decide to pursue a cash-out mortgage refinance, compare mortgage rates across multiple lenders on Credible to ensure you're getting the best deal on a new home loan. 

CASH-OUT REFINANCE VS. HOME EQUITY LOAN: WHICH TO PICK

3. 0% APR credit card offers

Many credit card issuers offer 0% APR introductory periods to entice potential customers. This means you can avoid paying interest on your purchases for a set period of time, typically up to 18 months. When the 0% APR period expires, you'll be charged interest on the remaining balance.

Zero-interest financing periods can be a great way to pay for a new air conditioning system without having to pay interest on your purchase at all. However, the credit limit may not be high enough to cover your entire purchase. Plus, these offers are reserved for consumers with good to excellent credit scores, so not everyone will qualify.

See if you're eligible by comparing 0% APR credit cards on Credible. 

HOW TO KNOW YOU'RE FINANCIALLY PREPARED TO REMODEL YOUR HOUSE

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.