What is a green personal loan?
A green personal loan works just like a regular personal loan, but they are specifically designed for the purchase and installation of energy-efficient goods and other eco-related expenses to make your home more environmentally friendly.
Besides being good for the planet, green personal loans are also good for your wallet because they usually have more competitive interest rates than regular personal loans to encourage borrowers to go green.
Green personal loans are available as secured or unsecured loans, offer flexible borrowing limits, and varying loan terms from one to ten years.
What can a green personal loan be used for?
Green personal loans can generally be used to purchase products that are more efficient in energy or water usage, or reduce pollution. Check with your selected lender whether the purchase you have in mind qualifies for a green loan. For instance, some lenders may require your product to meet a particular star rating in energy efficiency.
Green personal loans generally cover the purchase and installation of the following sustainable items:
-
Solar panels
-
Solar hot water systems
-
Insulation
-
Electric or hybrid vehicles
-
Rainwater tanks
-
Solar pool heaters
-
External awnings
-
Energy-efficient lighting
-
Energy-efficient air conditioning or heaters
-
Energy efficient white goods or appliances (minimum star ratings may apply)
-
Battery systems to store solar energy
-
Double glazing for windows
-
Grey water treatment systems
-
Electric vehicle charging stations
How to compare green personal loans
Here are some of the factors to consider when comparing green personal loans:
Check what the green personal loan can be used for
Depending on the lender, not all of the energy-efficient products we’ve listed above are eligible for a green personal loan, so it pays to do some research and ensure the lender covers your purchase.
Renewable and energy-efficient products often have to meet strict standards of performance and efficiency. For example, a solar battery system may need to generate a specific amount of energy to be eligible. To find out if the energy-efficient item you want to purchase is eligible, contact the green loan provider or read the product disclosure statement (PDS).
Competitive interest rate
Interest rates can vary depending on various factors such as the loan provider, whether the loan is secured or unsecured, and your own personal financial situation e.g. credit score.
Green loans generally have more competitive interest rates than standard personal loans to incentivise borrowers to purchase energy-efficient products for their home. However, you should still shop around and see how the rate stacks up against one another as they can vary.
Another thing you'll need to consider if whether you're after a fixed or variable interest rate. A fixed rate is locked in from the outset of the loan - your rate stays the same throughout the entirety of the loan. This can make budgeting around your installments easier. A variable interest rate can fluctuate with the market and/or lender.
Comparison rate
Comparison rates factor in some of the built-in fees over the loan term, giving you a more accurate picture of how the loan compares to others in terms of costs. So, don’t forget to factor in the comparison rate when comparing green personal loan options.
Loan amount and term
Make sure the minimum loan amount is enough to cover your needs. Perhaps you want to purchase a $700 energy-efficient fridge, but the lowest minimum loan amount is $1,000 in which case you may have to consider another financing option.
In Australia, green personal loans usually range up to $50,000, but some lenders do offer more.
You also want to ensure you'll be able to pay off your green personal loan at a speed which suits you. While some lenders may offer a loan term up to seven years, others may have a maximum loan term of three or five years.
Repayment flexibility
The last thing you should look out for when comparing green personal loans is repayment flexibility - are you able to pay off the loan early without incurring a penalty? Does the loan allow you to make extra repayments?
Find out what additional features a lender offers and whether you may take advantage of them in the future.
Fees and charges
Green loans can come with a variety of fees such as application fees, ongoing fees (e.g. monthly or annual), early exit fees, or even early payment fees. Ask your lender what charges are involved (and how much) to work out whether the loan is worth it in the long run.
What is the benefit of going green?
Implementing sustainable housing fixtures could see your home value increase by up to 10%, according to the 2022-2025 Housing Outlook commissioned by QBE Lenders Mortgage Insurance.
QBE LMI General Manager Pat Priest said increasing home energy efficiency is one of the best ways for consumers to future-proof their biggest assets.
"An energy efficient home uses 66% less electricity, 51% less water, and produces 62% fewer greenhouse gas emissions," Ms Priest said.
"Just be installing a 5kW rooftop solar system, the average Australian household could save up to $909 per year on their electricity bills."
Besides reducing usage costs, solar panels can also give homeowners feed-in tariff credit giving households savings on their energy bill whenever they contribute power back to the grid.
As well as minimising your carbon footprint, making greener choices can help you save money in the long run as you'll consume less power, water, and fuel which ultimately leads to smaller bills.
“The core values of my business is to do good for the environment, so it doesn’t make sense for me to invest my money into shares that support everything I am trying to go against. The next step for me is to review where I do my daily banking.”
Are there any government rebates or incentives available for energy-efficient upgrades?
The Federal Government does offer incentives for purchasing and installing renewable energy systems through the Small-scale Renewable Energy Scheme (SRES). Essentially, the SRES provides a financial incentive for households and business to install eligible small-scale renewable energy systems such as solar panels, solar water heaters, and air source heat pumps.
Households can also get feed-in tariffs. A feed-in tariff is a small rebate you'll get for each kilowatt hour (kWh) of unused electricity generated by your system not used by your home that is sent back to the main grid. Depending on the state, Australian energy providers usually offer between 7-11c per kWh.
Each state may also offer their own separate rebates for solar, electric vehicles, heating and cooling upgrades, and more.
Savings.com.au’s two cents
If you’re thinking about making your home more energy-efficient but don’t have the funds right now to make that dream a reality, a green personal loan can help you achieve that goal. Going green can be expensive initially, but taking out a green personal loan can help make those costs more manageable.
Besides, investing in energy-efficient appliances and renewable energy now may help reduce your household bills in the future, so it could end up paying for itself in the long-run.