Customer Financing on a Big Job: Your Own Payment Plan or a Lender?

Two HVAC contractors replace the same $12,000 furnace for homeowners who can’t pay it in one go. The first splits the price into three monthly payments on its own invoice and never thinks about lending law. The second offers 18 months at 0% through a finance company and is paid up front, less a fee. Both work. But the moment you offer customer financing, federal rules start to ask who the creditor is, what the contract must say and when you may start the job. Here are the three routes, what each one brings, and what a dealer fee does to your quote.

Three routes for customer financing

Most contractors use one of three routes. You carry a short, interest-free plan yourself. You run your own plan with interest, or with more payments. Or you send the customer to a lender that pays you and collects from them. The rules that matter come from three federal sources:

• the Truth in Lending Act and its Regulation Z, run by the Consumer Financial Protection Bureau (CFPB), which set cost-of-credit disclosures and a right to cancel some home-secured credit;
• the FTC’s Holder Rule, which requires a notice in consumer credit contracts linked to a sale;
• and, for sales made at the customer’s home, the FTC’s Cooling-Off Rule.

All three are mandatory where they apply. Which ones apply depends on the route.

Route one: a short plan with no interest

Under Regulation Z you are a creditor only if you regularly extend consumer credit that carries a finance charge, or that is payable under a written agreement in more than four installments, not counting the down payment. So a deposit plus three payments, with no interest and no fee, generally keeps you outside Truth in Lending.

There is one trap. If plan customers pay a higher price than cash customers, the difference is a finance charge, even if you call the plan interest-free. The CFPB’s official commentary gives the example of a $9,000 cash price and a $10,000 price on credit: the $1,000 is a finance charge. Progress payments that only cover work already done, with no obligation to keep paying, are not credit at all.

Route two: your own plan with interest

Add interest, or a fifth payment under a written agreement, and you are a creditor once you do it “regularly”. That means more than 25 times in the preceding calendar year, or in the current year if you didn’t reach it last year. For credit secured by a home the number is more than five. A creditor gives the customer formal Truth in Lending disclosures before they sign: the annual percentage rate, the finance charge, the amount financed and the payment schedule.

Your contract also needs the Holder notice, in at least ten-point bold type. In 16 CFR Part 433, this version begins “ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES”. If you later sell the contract to a finance company, the buyer takes it subject to the customer’s complaints about your work.

Your own lien right can trigger a three-day wait

This is the part most contractors miss. Under section 1026.23, credit secured by the customer’s principal home gives each owner three business days to cancel. For this rule only, Regulation Z counts liens that arise by law, and its commentary names mechanics’ liens. So when you carry the credit for work on someone’s main home, your own mechanic’s lien right can bring the rescission rules in, even with no mortgage signed.

Three consequences follow. You give two copies of the rescission notice to each owner. You can’t start work or deliver materials until the three days have passed. And if the notice is missing, the right to cancel lasts up to three years. A customer can waive the wait only for a genuine personal financial emergency, in their own dated words; pre-printed waiver forms are prohibited. When this rescission right applies, the FTC Cooling-Off Rule does not, so the two never stack. Our article on the Cooling-Off Rule covers sales without credit.

Route three: a lender you refer the customer to

With a referral lender, the customer signs the lender’s loan and you are paid when the job is done. The lender is the creditor and handles the disclosures, as long as the contract is payable to the lender. Watch the paperwork, though. If the customer signs a retail installment contract payable to you, which you then assign to the finance company, you are the creditor.

Because you refer customers to that lender, you may not accept the loan money unless the lender’s contract carries the Holder notice. The notice lets the customer raise your workmanship disputes against the lender, capped at what they have paid on the loan. You were liable to the customer anyway. The difference is that a dispute about your work can stop payments to the lender. Whether the lender then charges that back to you depends on your dealer agreement, so read it. A customer’s own credit card, or a bank loan you had no part in arranging, sits outside this rule.

If the lender takes a lien on the customer’s main home, the three-day wait applies here too: the lender gives the notice, but the job still waits. An unsecured lender loan carries no rescission right.

What a dealer fee does to your quote

“Same as cash” lender programs usually charge the contractor a dealer fee: a percentage of the amount financed, taken from what you are paid. Here is an illustration with a made-up 8% fee on the $12,000 furnace, financed over 18 months at 0%:

• Absorb the fee: the customer signs for $12,000, the fee is $960, and you receive $11,040.
• Raise the financed price: $12,000 ÷ 0.92 rounds up to $13,044, the fee is $1,043.52, and you receive $12,000.48. The customer pays $724.67 a month, $1,044 more than a cash buyer.

No federal rule bans the second approach. Regulation Z even lets the lender leave the fee out of its finance charge when you pass it on in a higher price. That is why the loan can show 0% while the financed customer pays more. In a 2024 report on solar loans, the CFPB criticized exactly that gap between the advertised rate and the real cost. If you carry the plan yourself, the credit-versus-cash difference is a finance charge you must disclose.

State rules can add more. In California, Business and Professions Code section 7159 requires any finance charge in a home improvement contract under its own “Finance Charge” heading, separate from the contract price. In Texas, a lien on a homestead for financed repair work needs both spouses’ consent, a five-day wait after the credit application, a three-day cancellation clause and signing at a lender’s, attorney’s or title company’s office. Check your own state before you write the contract.

Choosing your customer financing route

For no lending paperwork at all, keep your own plan to a down payment and four or fewer payments, at the cash price. If the job is large enough to need interest or a longer term, either take on Truth in Lending disclosures, the Holder notice and the three-day wait on main homes, or send the customer to a lender. If you use a lender, decide in advance whether you absorb the dealer fee or show financed customers a separate price. Put both prices in writing, and don’t call the higher one “same as cash”. Price the job first, as in our guide to HVAC rates, then add financing. Put any change in a written change order, and if payments stop, see our guide to getting paid when customers don’t pay.