As more and more HVAC contractors begin to offer financing options through third-party institutions, one company is going a step further by offering an in-house 10-year lease-to-own program to homeowners looking to purchase a new HVAC system.

While the concept of leasing residential systems is still new, contractors agree it could be a viable way to bring in more business while providing top-of-the-line equipment to customers who otherwise may not be able to afford it.

Making it Affordable

Though leasing HVAC equipment to tenants in commercial buildings is not unheard of, leasing residential equipment to homeowners is mostly uncharted territory. In September, Direct Energy, one of the largest energy and home services providers in North America, rolled out a new leasing program in select One Hour Heating and Air Conditioning locations in Texas and Indiana. Then, in March, Direct Energy expanded the program to include locations in
Ohio and Florida.

“We have about 20 locations throughout the U.S. that are doing this, and our plan is to increase that coverage across our market,” said Sayed Khoja, project manager, Direct Energy. “The replacement business is something we’ve been involved with for a long time, and we realize there’s a segment of the market we want to reach.”

The program targets homeowners looking to upgrade their HVAC systems with little or no upfront cost and low monthly payments spread over a much longer payback period than most other financing options.

“The customer has historically had the option of either paying for it all themselves … or [through] financing we arrange through partners,” Khoja explained. “Customers are looking at one-, two-, or three-year terms, and interest rates are going to vary depending on the customers’ credit profiles.”

Khoja added that, many times, customers will put the entire system on their personal credit cards, which often have a much higher interest rate.

“We wanted to spread the payment over what we think is the average useful life of the system, which is about 10 years,” Khoja said. “When you spread it over 10 years, it becomes much more affordable.”

At the end of the leasing program, homeowners can buy the equipment for $1, Khoja added.

Benefits for Homeowners

Mark Geschke, owner and president of One Hour Heating and Air Conditioning in Medina, Ohio, said the program is attractive to customers looking for a lower monthly payment.

“At 11.9 percent, that’s a fairly good rate for our industry,” Geschke said. “[Customers] like the ease of the approval process, and the paperwork is very easy. The loan being spread out over that 10-year period gives them much lower payments.”

In addition to lower payments, the leasing program also gives homeowners the opportunity to purchase high-end systems that would have previously been outside their price ranges.

“It allows them to do things with their HVAC system they might not have done with cash or regular financing,” Geschke said. “We’ve found that they’re purchasing more IAQ products that they may not have done in the past.”

“A lot of them are going with higher-efficiency systems that they otherwise wouldn’t be able to afford,” Khoja agreed. “They may even add some IAQ or do some ductwork. They’re doing this because they can afford it over time.”

And for those who might fall on hard times and are unable to make lease payments, Khoja said they have no intention of repossessing their equipment.

“We don’t envision ourselves repossessing the equipment — it’s not in our best interest or their best interest,” he said. “We’d try to work with the customer to reach a solution. We also look at credit profiles and check credit scores and make sure it’s the right thing for the customer.”

Benefits for Contractors

For Geschke, the lease-to-own program has given him a “competitive edge” in his service area.

“Having it spread out to 120 payments, it’s more attractive for customers,” he said. “We’re advertising it in all our marketing as long-term, low-interest financing. Right now, we’re at $81,000 [in sales] in the last couple of months, and we’re looking to double that by the end of the year.”

Geschke said working with One Hour’s parent company, Direct Energy, has been very easy. “It’s easy for the customers and easy for the dealer,” he said. “Our salespeople love it and our technicians love it, also. It’s just something that’s easy to present to the customer.”

In addition to its ease of use and competitive edge, the leasing program has the potential to save contractors a lot of money, said Steve Moon, owner, Moon Air Inc., Elkton, Maryland.

“When we use conventional financing, we have to pay financing points,” he explained. “Say I offer you zero percent financing on your new air conditioning unit. I have to pay a percentage of that deal to my financing company for them to offer that program. It may cost me 3 percent of the deal for me to offer you zero percent financing, but when you lease, it costs contractors no points, so it’s in my best interest to lease.”

Rich Morgan, president, Magic Touch Mechanical, Mesa, Arizona, said the concept of a lease-to-own program for consumers is brilliant, and that he would definitely consider implementing a program like Direct Energy’s leasing program.

“Consumers love options,” Morgan said. “A lease-to-own program could probably make the difference in why a consumer chooses a contractor that offers them a lease program versus one who doesn’t.”

Currently, One Hour’s HVAC leasing program, which has yet to receive a marketing-friendly name, is operational in four states, though Direct Energy is “working hard to expand the program to more states,” Khoja said.

“We’d like to be operational in our entire footprint by the end of the year,” he added. “That’s our goal.”

Publication date: 7/14/2014 

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