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Green Personal Loans: What Are They?
●June 23, 2021●6 minute read
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Do you want to improve your home’s energy efficiency? Are there environmentally friendly alternatives that you’re wanting to switch to? Eco-friendly products and systems can reduce your household costs significantly in the future – but they can also be expensive to buy. Luckily, green personal loans exist to help with this.
Learn more about what these types of loans are and how you can take advantage of their benefits to improve your home today.
What is a green personal loan?
Green personal loans are much like regular personal loans. The main difference is that green loans are designed for people wanting to buy energy efficient and eco-friendly goods.
Depending on the lender and loan terms, a green personal loan covers the purchase and installation of renewable and sustainable house options. They exist to make environmentally friendly options more affordable for everyday consumers.
As such, green loans usually offer highly competitive interest rates to incentivise consumers to “go green” in their homes. To apply for a green loan, you must be at least 18 years of age and an Australian resident.
Like regular personal loans, green loans have a number of financial options to choose from. These options offer financial flexibility and encourage more consumers to apply. These can include:
- Choosing between a secured or unsecured personal loan;
- Flexible borrowing limits;
- Option for early repayments;
- Varying loan terms (between one to ten years).
Importantly, green loans are only approved for energy efficient and eco-friendly purchases. As a result, they cannot be used for other unrelated household purchases. Green loans can also have varying minimum loan amounts. This means you should consider your desired purchase and whether or not the lender’s minimum amount suits you.
For example, you may want to use a green loan to buy an energy efficient dishwasher which costs $800. However, the minimum loan amount may be $1,000. Therefore, you should consider another financing option or a different lender for your green loan.
Eligibility for green personal loans
To be eligible for a green personal loan, lenders will consider your financial background. This is much like the application process for regular personal loans. This includes assessing your:
- Current income;
- Credit history and score;
- Australian citizenry/permanent residency;
- Bankruptcy claims;
- Personal information (including residential address, phone number, evidence of income and employment, assets, and debts).
What to avoid
When you decide to apply for a green personal loan, you should avoid the following:
- Borrowing too much money (consider your minimum loan amount and whether your savings could cover the rest);
- Borrowing from unlicensed/unreputable lenders;
- Lenders which charge excessive fees and charges.
Before applying for a green personal loan, you should research the different interest rates offered by lenders. These can be compared to find the best option for you. You can also use a loan calculator to find an estimate of your loan repayments based on your financial situation.
The Australian government currently has several energy rebate initiatives in place. These initiatives help Australians save money when upgrading to eco-friendly household items. These include:
- Renewable power incentives;
- House energy incentives;
- Electricity feed-in tariffs;
- Appliance purchases.
These rebates are designed to reduce the upfront costs of installation for certain energy efficient items. However, there are a number of requirements to be met before you’re eligible for a rebate. You should therefore check your eligibility to see if you qualify for one of these rebates.
What can you use a green personal loan for?
Depending on your home’s age, there may be many sustainable options for you to introduce. Some lenders approve green personal loans for any energy efficient household purchase. Others are more selective with what they consider an ‘energy saving’ product. Generally, green loans cover the purchase and installation of the following items:
- Solar hot water systems;
- Solar panels;
- Solar pool heaters;
- Rainwater tanks;
- Electric or hybrid vehicles and electric vehicle charging stations;
- Energy efficient air-conditioning or heating systems;
- Solar energy battery systems;
- Energy efficient white goods or appliances;
- Double glazing for windows.
There are many more energy saving items which green loans can cover. Depending on the item, costs can vary significantly. For example, you can easily spend thousands on a new high-end washing machine; but you can also get a base-level eco-friendly machine for a lot less money.
It’s important to note that, especially for white goods and appliances, minimum star ratings may apply. This may limit your item search to a certain quality of products. You should therefore check with the lender to see what their requirements are when it comes to star ratings and eligibility. Additionally, there are factors that affect the price of installing certain energy efficient systems. For example, your house size will influence the type of upgrades needed as well as the labour and installation costs that are necessary.
How do I compare green personal loans?
When applying for any type of loan, you should always compare options to find the best loan terms for you. This applies to green personal loans as well. Because green loans have such competitive interest rates, you have the freedom to shop around before deciding who to go with. As such, when comparing green loans, there are a few key areas to consider. These are discussed below.
An important factor to consider when researching green personal loans is the reputation of the lender. Some lenders may offer you great loan terms and highly competitive rates, but they may not have a good industry reputation. It can be safer to go with a reputable lender, because it offers security in your loan.
You will also find that reputable lenders will likely have a high level of support and resources to help you with your application and repayment process. Importantly, many reputable lenders will offer highly competitive interest rates as well.
Interest and comparison rates
As you now know, green personal loans have highly competitive interest rates. This is to encourage borrowers to choose eco-friendly home appliances, products, and systems.
When choosing a green loan, you may have the option to choose between a fixed and variable interest rate. Both of these options have their advantages and disadvantages depending on your financial situation. Like regular personal loans, a fixed interest rate will suit you if you want stable repayments. On the other hand, a variable interest rate might suit you if you plan on making additional repayments, or paying off your loan sooner than the loan term.
Along with this, you should consider comparison rates when comparing loans. This means looking at a single figure of the cost of the loan, which includes the interest rate and most fees associated with the loan. By assessing the loan in one overall figure, you can quickly compare it to other loans on the market.
Secured vs. unsecured loans
When you compare green personal loans, you might find some lenders offer the choice of a secured or unsecured loan. A secured loan is one which is backed by an asset. This means that, if you fail to make repayments on your loan, the lender can sell the secured asset to get the money owed.
An unsecured loan is the opposite of this. This means that the lender does not choose an asset to use as security. To cover themselves, lenders usually offer unsecured loans at a higher interest rate.
You should compare eligibility for green personal loans with different lenders. This includes checking what appliances, products, and systems are approved for the loan, as this will vary for each lender. Some lenders may also have more stringent requirements on star ratings for appliances. Therefore, you should check whether this applies to your chosen item and loan as well.
Additional factors to compare
There are additional factors to compare when choosing a green personal loan. These include:
- Checking the loan’s minimum amount;
- The loan’s application fee;
- The lender’s repayment flexibility;
- The loan’s minimum repayment amount;
- Any other fees associated with the loan.
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Written by Katie Francis
Katie Francis is a Content Writer at Jacaranda Finance. She has a Bachelor of Business (Marketing)/Media & Communications from the Queensland University of Technology.