Green Loans

Home solar, electric cars and energy-efficient systems for air conditioning or hot water can save you a lot of money in the long run. Whether you're just a bit short on cash or want to finance an efficient system outright, a green personal loan can help you go green.

What is a green loan and how does it work?

A green loan is a personal loan used for buying approved green, energy efficient and cost-saving purchases. This can range from solar panels to insulation. A green loan can finance and stagger the cost of making your home energy efficient. A green loan works like other personal loans, except that you can only use the funds for the said green purchases. Features of a green loan include:

• Secured and unsecured loans. You can find both secured and unsecured green loans. Generally speaking, secured loans feature lower interest rates than unsecured loans.
• Range of interest rates. Depending on the lender you go with, you could pay interest starting from 0% or 1%.
• Fixed or variable rates. Your lender may offer either a fixed or variable rate loan. You can choose depending on what you prefer. With a fixed rate, your interest payments will remain the same every month. With a variable rate, you could benefit from lower rates if the market rate drops. Conversely, you may pay more if the rate increases. This makes it difficult to predict your monthly interest payments.
• Varying repayment periods. Terms can range from as little as 6 months up to 7 years.
• Flexible borrowing amounts. There are a lot of potential purchases that qualify for green loans, reflected in a wide range of borrowing limits to suit different items. Borrowing limits can range from $1 up to $50,000, depending on the lender.
• Early repayments. You'll often be able to make early repayments without penalty.

What can I use a green loan for?

Depending on the green loan, you may be able to use it for a specific range of items. Others may allow you to use the funds for anything eco-friendly.

Energy-efficient purchases can include almost anything that directly cuts your energy bill, or helps you use less energy.

Green purchases may include:

• A solar power system. Solar systems harness clean energy from the sun to power your home. It can also help you save on energy bills over time. There are a number of ways to finance a solar power system. You can read more about it here.
• A solar hot water system. Older hot water systems can be big energy guzzlers. Modern solar hot water systems use clean, renewable energy and can substantially reduce your energy bills.
• Energy-efficient appliances. Use the Energy Star rating scheme to find the most energy-efficient washing machines, dryers, fridges, dishwashers and other appliances.
• Energy-efficient heating and/or cooling. Older air conditioners and heaters are big energy consumers, and you may often have a thumping energy bill at the end of summer or winter. Upgrading to a modern, more energy efficient option can provide a cleaner heating and/or cooling for your home. You could also opt for a solar pool heater to keep your pool temperature regulated all year round.
• Insulation. Insulation for the ceiling, floor and walls can help keep your home at a comfortable temperature all year round, reducing heating and cooling costs.
• Double glazing for windows. Like insulation, double glazing can help keep the heat out in summer and lock out the cold in winter.

Upgrading your home to make it energy efficient can be a big investment, and it may be difficult to find the funds to upgrade it in a single go. With a green home loan, you can break down this cost in increments, while enjoying lower bills and reducing your impact on the environment.

Why should I go green?

There are a number of advantages to going green. These include:

• Lowering your impact on the environment and yourself. Bask in air conditioning guilt-free. A hot summer doesn't have to overheat your conscience. With a green upgrade, you'll be reducing environmental pollution and your carbon footprint. Reducing air pollution has the ripple effect of improving air quality and, thereby, your health itself.
• Lowering your energy bills. While going green can involve an upfront expense, in the long run you may save money. Your energy bills may be lower, and your bank balance will be happier for it.
• Monitor or limit your energy usage. You'll be reducing your energy usage, and depending on the appliance, you may also be able to monitor and track it. That way, you know what's eating up the most power and what to expect when you get your bill.
• Increase the value of your home. A greener home adds a few dollars to the value of your home and makes it more attractive for potential buyers, if you ever plan to sell.
• Lead a more comfortable lifestyle. If you're planning on, say, insulating your home, you're essentially ensuring that you're comfortable all year round. No matter how cold or warm it is, you'll always be cosy.

How much will it cost to make my home more energy efficient?

The cost will depend on what kind of upgrades you want to make.

For instance, buying an energy efficient washing machine or dryer could cost less than $1,000. Some high-end models with excellent energy ratings may be a little more expensive. Other upgrades can cost significantly more. A decent-sized solar power system could set you back more than $6,000. Buying and installing a split-system air conditioning unit could cost around $5,000.

If you want to make your home energy efficient, it might be a good idea to target the major sources of energy in your house. This can include air conditioning, heating and hot water systems. These are likely the biggest energy consumers in your household. Meanwhile, appliances can be responsible for up to 30% of your energy bill, so upgrading may be a worthwhile investment.

You will have to bear a large upfront cost, but you may make savings in the long run because the running costs will be lower. Additionally, with a green home loan, you'll be stretching the cost and minimising the short-term impact on your wallet.

What kind of green loans can I apply for?

• Secured green loans. Some lenders offer green loans that are secured against the property you're upgrading. Secured loans generally come with lower interest rates.
• Unsecured green loans. You don't need to offer loan security for this type of loan, but the interest rate is typically higher.
• Green car loans. You can finance the purchase of a hybrid or electric vehicle with a green car loan. These vehicles have a lighter environmental footprint and help keep pollution down.

How can I compare green loans?

• Interest rate. Your interest rate will affect your monthly repayments and the total cost of the loan. This makes it important to compare interest rates and find a loan that is competitive.
• Fees and comparison rates. Interest rates aren't the only factor when considering costs. You should also consider the fees and the comparison rate. Fees can include application fees and account-keeping fees, which will add to the cost of your loan. It may be tempting to go for a loan that advertises low rates, but it may have high fees instead. This may work out to be more expensive, so keeping an eye out for fees is a good idea. The comparison rate includes both interest and the fees you will be charged. It will give you an indication of the true cost of the loan.
• Loan term. This is how long you have to repay the loan. The length of the term will affect how high your repayments are. This means that with a short term, you can expect higher monthly repayments. But with longer terms, you pay more in aggregate interest and fees. You can use a personal loan calculator to get an idea of what your repayments will be like with different loan terms.
• Green coverage. It's important your lender covers the upgrades you want to make. Before you apply, you should check if the lender funds the kind of upgrades you want to make.
• Security requirements. Some green loans may be secured against your property, while others will not require security. Based on which you prefer, you should filter providers.
• Loan amount. Lenders have set minimum and maximum lending amounts. Make sure the amount you need is on offer from the lender.
• Loan features. Look for a loan that offers flexibility. Can you make early repayments? Will you be allowed to redraw these extra repayments, or will the lender charge you for this facility?
• Eligibility. You may not be eligible for some green loans. Lenders may require, for instance, that you have a home loan with them already. Others may only consider your finances and credit history to determine eligibility.

Are there any government programs that help with the cost of energy efficient upgrades?

There are 2 main federal government initiatives across the country that can help you save and recoup some of the money put into upgrading your home. These include:

• Renewable power incentives. This is for homeowners who install small-scale renewable energy systems or eligible hot water systems. You can get help with the upfront cost of purchasing and installing these systems under the Small-scale Renewable Energy Scheme. Apart from this national-level scheme, there are also state incentives you can check out. ACT, for instance, is aiming to subsidise up to 5,000 battery storage systems in the state. Meanwhile, the Victorian government will subsidise the cost of installing solar and battery storage.
• Electricity feed-in tariff. With this tariff, you are essentially being paid for any extra energy you generate that is fed back into the grid. This applies to extra energy generated from small-scale wind turbines, solar or hydro systems. The feed-in tariffs will differ based on your state and your retailer. Some governments may have a minimum rate in place.

There are also other state-level incentives you could benefit from. The Victorian Energy Upgrades program can help households with the cost of purchasing energy efficient appliances and products. Meanwhile, South Australia has the Retailer Energy Productivity Scheme which allows households to save when purchasing products from participating retailers. New South Wales has a Solar for Low Income Households scheme which provides a free 3 kilowatt solar system for eligible households.

How can I apply for a green loan?

🤔 Work out what type of upgrades you need, how much they cost, how much you need to borrow and what you can afford.
🔎 Start comparing lenders. You can use Finder's comparison tables. Don't forget to compare interest rates and keep an eye out for fees.
✅ Select a lender. You can click "Go to site" to be directed to the lender's page, or "More info" if you want to read up on the lender.
🖨️ Organise and prepare the required documentation. This can make the application process easier.
📱 Apply. Most lenders have their applications online.

Frequently asked questions

• Am I eligible for a green loan?

  Eligibility will differ based on the lender and the loan. Some lenders, for instance, will require that you already have a home loan with them. Others may offer risk-based lending, allowing borrowers with imperfect credit scores access to a green loan. Generally, to be eligible for a green loan, you must be over the age of 18, a citizen or Australian permanent resident, and you must use the finances for eligible green purchases.

• Is it worth using a loan to go green?

  This will depend on your financial situation and how much you stand to save by going green. If a large green update is likely to wipe out your savings, a loan may be worth it. That is granted you can afford the monthly repayments. You should also keep in mind that you might end up saving more by installing the system now, rather than if you wait for another 5 years to upgrade. In the meantime, if it's a small upgrade, like an appliance, there may be better interest-free options on the market. Your retailer may offer an interest-free scheme that would work out to be cheaper than a loan. Ultimately, what you need to consider is how much the loan will cost you and if there are better options. It may be that with some of the government incentives, you may not need to apply for a loan.