Why show a monthly payment at all?
A replacement system is a large, unplanned purchase. Many homeowners judge it by what fits their monthly budget, not the total. Showing the payment for each option makes the step between systems concrete. The extra comfort or efficiency of the next tier may cost less per month than they expect.
The payment never replaces the total price. Show both, and keep the tone helpful, not pushy.
How is a loan payment calculated?
For a standard amortizing loan, the monthly payment is P x r / (1 - (1 + r)^-n). P is the amount financed, r is the annual rate divided by 12, and n is the number of monthly payments. Spreadsheets do the same with the PMT function.
As a check, a $20,000 loan at 7.5 percent for 60 months works out to $400.76 a month, matching the standard worked example. When the rate is 0 percent, divide the amount by the number of months.
This is principal and interest only. A lender's fees, taxes and promotional terms can change the real payment, so use the lender's own figures on the final proposal.
What does a worked example look like?
1418 Ridge Rd gets three system options. Prices and terms below are examples.
Good, $8,400: $140.00 a month for 60 months at 0 percent, or $106.36 a month for 120 months at 8.99 percent.
Better, $10,900: $181.67 a month for 60 months at 0 percent, or $138.02 a month for 120 months at 8.99 percent.
Best, $13,500: $225.00 a month for 60 months at 0 percent, or $170.94 a month for 120 months at 8.99 percent.
On the 120 month plan, Better costs $31.66 a month more than Good. The 60 month 0 percent plan costs more per month but no interest. Total paid on the Better 120 month plan is $138.02 x 120 = $16,562.11, which is $5,662.11 of interest over the loan.
How do you explain the trade-offs honestly?
Say what a longer term costs in total interest. Say if a 0 percent offer needs a shorter term or has conditions. Some lenders charge the contractor a fee that gets built into the price, so check your lender agreement and keep the cash price and finance price consistent with it.
Do not promise approval. Credit decisions belong to the lender, and the customer should see the lender's disclosure before signing.
How do you keep the proposal clear?
Put each option on the same page layout: equipment, SEER2 rating, warranty, price, and payment with its term and rate. Use the same financing plans for every option. Add a line that the payment is an estimate until the lender approves the application.
Step by step
- Confirm the lender's terms. Get the current rate, term and any fees for each plan you will offer.
- Convert the rate. Divide the annual rate by 12 to get the monthly rate r, and multiply years by 12 to get n.
- Compute each payment. Apply P x r / (1 - (1 + r)^-n) for every option and plan, or divide by n at 0 percent.
- Show terms beside payments. Print the rate, term and a note that approval and final terms come from the lender.
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