Get the lowdown on green loans

Compare green loans and fund a better tomorrow

A green loan is a small step you can take today for a big impact on your tomorrow. But making a positive change to your home and energy use shouldn’t have a negative effect on your finances. Finding the right loan is important.

So you can compare green loans with confidence, we’re here to help you understand everything you need to know about green loans, from what they are to what you can use them for. Let’s take a look.

It’s so easy being green

Making your life more eco-friendly is a personal choice. Whether it’s solar financing or a renewable loan, finding the right green loan comes down to you and your needs. So that’s exactly where you should start when you’re considering finance.

To make it easier to compare green loans, you need to know what you’re looking for. So here’s some questions to ask yourself to help you understand what you’re after.

Time to compare

Now that you’ve got a rough sketch of what would work for you, you can start the hunt for the finance that ticks all your boxes and compare like for like.

Our Green Loan Comparison [SA(3] calculator allows you to compare green loans and repayments against other lenders across a wide range of green loans up to $50,000, to help you choose the loan that’s right for you.

Chapter 1

What is a green loan?

The help you need to invest in a sustainable future.

A green loan is simply a type of personal loan. The more important question is: what is a green loan for? Well, it can be used to fund the purchase and installation of approved clean energy products. You might have also heard it called green financing, solar financing or a renewable loan. Whatever you call it, it’s a win, win kind of loan – helping you lower your energy bills while doing your bit for the planet.

Green loans are often offered at a lower interest rate than traditional loans, making it easier for you to play your part in a more sustainable future.

But, like most kinds of finance, green loans come in a few different shapes and sizes. It’s important that you understand your options so you can pick a green loan that works for you.

Shades of green

Green loans are a great way for you to access cost-saving clean energy technology without a big lump sum up front and allowing you to spread the cost over monthly repayments. But there are a few choices you’ll need to make when it comes to finance. Here’s the main differences in green loans:

  • Secured or unsecured?

You can often access a better rate if you’re willing to put up an asset as security against the loan. But remember, a secured loan gives the lender the right to repossess the asset if you can’t repay the debt.

  • Fixed or variable?

You can choose to lock in your interest rate by fixing your loan. You should expect your rates to be a bit higher than with a variable rate, but you’ll avoid the ups and downs of the market and be able to work out the total cost of your loan, to the cent.

How much can I borrow?

With a green loan you can borrow up to $50,000 [SA(1] or more across a range of loan terms, from 1 to 7 years. You will need to pay it back in regular instalments (weekly, fortnightly or monthly) with interest, which may be fixed or variable, across the term of the loan.

How do I compare green loan rates?

Don’t be left thinking what if. What is a green loan going to mean to you?

Compare your loan options and be sure your finance is a winner. Our Green Loan Comparison calculator lets [SA(2] you compare a wide range of green loans up to $50,000, against other lenders, so you can find your best option.

Chapter 2

How do green loans work?

A bit green when it comes to loans? Here’s what you should know.

Love your home but want to reduce your environmental footprint? Or maybe you want to maximise your energy use and minimise your energy bill. Good on you.

Understanding the importance of going green doesn’t mean you’ve got your head around the important parts of finance. So let’s look at how green loans work so you can make the right choice for your needs.

Inside a green loan

A green loan, just like any other loan, is made up of several parts. You need to understand each element so you know exactly how your finance works, and make sure it works for you. Here’s what you need to know.

Interest rate

Money, even green money, doesn’t grow on trees. So when you borrow it, you need to pay it back with interest. The percentage of interest that you’ll pay on top of the amount you borrow is usually measured as an annual rate and called the Annual Percentage Rate (APR) or Advertised Rate.

The rate your lender offers will factor in things like your credit history, your repayment schedule, how much risk there is lending to you (looking at the market and your individual situation) and their underlying costs.

You’ll often see a headline advertised rate – this is the lowest rate lenders have available. But you may not be offered this rate. It’s usually only available to a small proportion of borrowers and comes with set conditions to qualify (e.g. a high credit rating).

To get a better picture of the interest you’ll pay, you’ll need a personalised rate. You can get this by contacting a lender and seeing what they’ll offer you. You should talk to a number of providers, but just make sure that their quote process is ‘credit score friendly’. They should only conduct a soft check on your credit file, otherwise it could impact your credit score.

And remember, the best loan for you might not come with the lowest interest rate. It’s important to consider the total cost of the loan including interest, fees and other costs to judge what’s right for you.

Comparison rate

On top of the interest, a green loan will usually come with fees and other charges. When you add them all up, you might find they outweigh the benefits of a great rate. That’s what makes the comparison rate important. A comparison rate factors in the interest rate and any fees, and expresses this cost as an annual percentage. It’s usually higher than the interest rate charged on the loan, but you’ll find it gives you a much better idea of how much the loan will actually cost you.

In fact, under the National Consumer Credit Protection Regulations lenders and brokers must provide a comparison rate when they advertise a loan interest rate – it’s that important.

How is it measured?

Of course, to be a fair comparison rate you need to be comparing apples with apples. So for personal loans, there is a standardised measure for how comparison rates are to be calculated and displayed. For variable and fixed rate personal loans, the comparison rate is based on a $30,000 unsecured loan over 5 years.[SA(2] 

But it’s still not the end of the story as not all costs are included. You will still need to consider other potential charges including:

  • Late payment fees
  • Break costs or early termination fees
  • Deferred establishment fees
  • Broker fees (when taking out a loan through a broker, the broker’s service fees aren’t included in the comparison rate, which can be significant)

What if there isn’t any interest?

Although most loans come with interest, there’s one small exception. With a 0% interest payment plan, borrowers don’t pay a cent in interest. You will, however, still have to pay a monthly fee.

Repayments

Once you receive your loan, you of course need to start paying it back. You’ll need to agree to make regularly scheduled repayments – either weekly, fortnightly or monthly. And quick tip: check that your loan repayment calculations have been quoted inclusive of any ongoing fees when you factor these repayments into your budget to avoid being caught short.

One variation to this is a balloon payment – your lender might give you the option of making a lump sum repayment at the end of the loan term. It helps reduce your regular repayments which can be a handy way to manage your cash flow. But remember, the lump sum is still due at the end of the loan, so you’ll need to still find the money to pay back the debt. And your interest payments will be higher as you go so you’ll be paying interest on a higher outstanding balance.

Upfront fees

At the start of the loan you may also be charged to get the money ball rolling. Known as upfront, establishment or application fees, they can include:

  • A flat fee (e.g. $499) that applies regardless of the value of the loan
  • A tiered fee (e.g. $250, $500, $750) based on the value of the loan
  • A percentage fee (e.g. 3%) based on the total amount borrowed and the credit or risk profile of the customer
  • A hybrid fee (e.g. $200 + 2% of the loan amount)

It’s your lender’s choice if they want to charge these fees.

But even though they’re charged ‘up front’ fees, that’s not when you actually pay them. They’re usually capitalised or added to the loan, which increases your total loan amount by the amount of the fees. That means you’ll be paying interest on those fees (as part of your total loan) for the life of your loan.

It might not make too much of a difference if it’s a small upfront fee – as little as a few dollars on each repayment. But if the fees are significant, it can add thousands to the total cost of your loan.

Monthly or ongoing fees

You might also be charged a monthly fee for the life of your loan. Also called ongoing, account keeping or loan management fees, they’re an administrative cost from your lender and don’t go towards paying back your loan at all. As a general rule, the lower the fees, the better. But when you compare loans you should still consider the total cost of your loan including all interest payable and other charges.

Brokerage fees

Brokers can be a good way to explore your finance options, but they’re not the free service you might think. You still pay them, either directly or indirectly. For personal loans, the brokerage fee is usually capitalised to the loan amount and is in addition to the lenders own upfront fee. Sometimes brokers also have commission arrangements with lenders, either built into your interest rate or offered as a return based on your interest rate. Their fees are still a cost to you, so they’re important to remember when comparing loans.

Penalty fees

The most common penalty fee is a missed payment or ‘default’ fee. Although penalty fees are avoidable, all it takes is one late payment or not having the money in your bank account the day your loan repayment is coming out and you can be slugged with a charge you haven’t budgeted for.

Late fees vary from $10 to as much as $35, although your lender may waive the fee if you bring your account up to date within 3 days of a missed payment. But you shouldn’t count on it, so be sure to keep an eye on your finances and have enough in your account to pay the loan whenever it’s due. You might find it helpful to have a separate account dedicated to paying your loan to make it easy to keep watch.

Early repayment fees

Green loans are an investment in your future. When your home improvement helps you save money on your energy, a great way to use those savings is to pay back your loan early. This can help you save money on interest, but it’s important to check if it comes at a cost.

Exit fees or early repayment fees are particularly common with secured low-rate loans, but it’s up to every lender to decide what they charge. And there are different types of fees, including:

  • A fixed fee where the loan is repaid in full any time prior to the end of the loan term (e.g. $500)
  • A fixed fee where the loan is repaid in full prior to a minimum period (e.g. $250 if full repayment is made less than 2 years into a 5-year loan)
  • A variable fee based on the amount you would have paid in interest and fees had the loan run to full term

Loan amount

The loan amount sounds obvious – it’s how much you need to borrow. Although don’t forget to factor in those upfront fees capitalised to your loan. With those included that’s the total amount of your loan. And it’s that amount, known as the principal, that you’ll be paying interest on. The interest is charged on the outstanding balance of your loan – so as you pay down your principal the amount you pay in interest decreases.

In Australia, green loans usually range up to $50,000, but some lenders will go higher.

Loan term

You’ll only have so much time to pay back your loan, that you’ll agree to when you apply for your loan. This is the loan term. In Australia, lenders offer loan terms between 1 and 7 years, with 3-, 5- and 7-year terms being the most common.

Which one you pick depends on what suits you and your budget. While your monthly repayments will be lower with a longer term, you might be charged a higher interest rate so it could cost you more.

Customer experience

While technically not part of your loan, your customer experience can have a big impact on your satisfaction with your loan. How do green loans work best? Using a lender that makes it quick and easy to apply, get approved and manage your loan can make a big difference to your experience. And when you know they care about your experience, it means you can more likely trust you’re getting a good deal.

What about the government green loans program?

As a bonus round, the last thing for you to know is that this is something you don’t need to know about anymore. It existed back in 2010 to help households tackle climate change and reduce their greenhouse emissions, but it hasn’t been around for quite some time now. However many lenders continue to offer green loans at reduced rates.

Chapter 3

What are green loans used for?

An investment in tomorrow while you live your life today.

Every little bit helps when it comes to building a more sustainable future. And it starts at home. 

So if you’d like to be the change you want to see, a green loan can help you get there sooner. But exactly what are green loans used for? Let’s take a look.

For little changes that make a big difference

Green loans can only be used to fund the purchase and installation of energy efficient products. But that’s no small list. They can include:

  • Solar panels and home batteries
  • Solar pool heating units
  • Energy-efficient lighting
  • Energy-efficient air conditioning units
  • Hybrid low emission cars
  • Air source heat pumps
  • Power factor correction
  • Variable speed and frequency drives

That said, it’s important to note that not all products in the above categories are eligible for a green loan. Green loans are usually offered at a lower interest rate, so it’s important to make sure they’re really going to a green solution.

So, it’s not just a question of what are green loans used for, but does the product you’re looking at qualify. Because to make the cut, renewable energy products must meet strict standards of efficiency and performance.

To find out if what you’re planning for is eligible, simply check with your green loan provider. If your product doesn’t qualify for a green loan, you may still be able to access finance as a general personal loan.

And without the hard work

But it’s often not as hard as it sounds to know if what you’re interested in is eligible for a green loan. Green loan providers usually work with an approved list of product suppliers, installers, and other contractors.

And it can be even easier to pay. When an approved contractor carries out the work on your property, they then submit their invoices directly to your green loan provider. It’s less hassle and helps your hip pocket as you can avoid borrowing any more than you need. Then you’ll repay only the cost of the product itself plus interest.

For a smaller footprint

The green improvements you choose qualify because they’re either more energy efficient than standard alternatives, or they improve the energy efficiency of your home. So you can enjoy the good kind of warming – a heart happy to be helping the planet.

For money in the bank

Reducing your energy consumption often means a boost to your bank balance. Enjoy watching your energy bills come down as your green improvements start to pay for themselves.

For the joy of the open road

Yes, cars are eligible for green loans, too. So you can take your eco efforts out of your home and onto the open road. Buying a hybrid or electric vehicle can earn you a better deal on your car loan – with reduced fees and up to a 1% discount on interest rates. But again, they must meet the eligibility criteria.

Chapter 4

What are the types of Green loans?

Think globally, act locally, with the right green loan for you.

Go green and you’ll never look back. Especially with a low-interest rate loan that recognises your good work. But what are the types of green loan you can access? And are there other ways to pay for your green improvements?

Let’s run you through it.

Where responsibility meets personal choice

Green loans are a special type of personal loan, but usually at a slightly lower interest rate than a standard loan. And like any kind of personal loan, it comes in a few different forms, so you’ll need to make some choices about what works best for you.

Will it be secured or unsecured?

If you own something of value, like a car, home or term deposit, you can choose to secure your loan against that asset. The big drawcard is that you’ll usually be offered a low rate because it’s less of a financial risk for a lender to loan you money. You may also be able to borrow a larger amount or access a longer-term. But remember, your lender gets the right to seize your asset if you don’t keep up with your repayments.

The alternative is an unsecured loan, where no assets are used as security against the loan. It’s more of a risk for them as they have no guarantee, they’ll just be looking at whether or not they think you’ll be able to pay money back. They’ll decide this based on how creditworthy you are. But because of the increased risk to your lender, they’ll probably offer you a higher interest rate, lower loan amount or a shorter term.

Most personal loans are actually unsecured. The application and approval process are usually much quicker, you’ll get more freedom to use the funds and your assets aren’t directly at risk if you default. And if you want to repay your loan early, you can often do so without paying an early payment fee.

Why choose a secured loan?

Lower rates

Borrowing potential increased

Longer terms available

Can take longer to approve

-  Your asset is at risk if you fail to pay

-  More likely to have early repayment fees

Why choose an unsecured loan?

Greater freedom

Quick application process

Usually more flexibility to repay your loan early

-  Higher rates

-  Less borrowing potential

-  Shorter loan terms

Keep your interest rate fixed or leave it variable?

Next, you need to consider how you’d like to pay your interest – either at a fixed or variable rate.

By fixing your interest rate, you guarantee that it remains the same for the life of your loan. However, a fixed rate usually has higher interest than variable rate loans. But they do give you more certainty and if variable rates go up, you won’t be affected.

On the other hand, you can choose a variable-rate loan. That means your interest will move up and down with the market, which is great if the market interest rate goes down as you’ll be paying less. But, if they go up, so will the cost of your repayments.

Typically you have less flexibility to make early repayments with a fixed rate. But shop around – many online loan providers offer no early repayment fees for both fixed and variable rate loans. So it’s important to check with your lender first.

Why choose a variable rate loan?

Usually more flexibility to repay your loan early

You’ll benefit from lower repayments if interest rates go down

Rates are competitive

-  A rate increase will result in higher repayments

-  Budgeting is harder

Why choose a fixed rate loan?

Know what your repayments will be for the life of the loan

Easier to budget

-  More likely to have early repayment fees

-  May be less flexible depending on provider

Anything else to know?

That’s the main differences covered, so you’re most of the way there. You should be in a good position to start comparing loans, but here are a few more terms you might come across along the way.

Fixed-term vs line of credit

A fixed-term loan is what you’d expect – once you get the money as a lump sum, you then pay it back within an agreed amount of time. As the term is set, you know exactly how long it will take you to pay back your loan, making regular repayments along the way.

A line of credit works a bit differently. Offering an ongoing credit facility, it works a bit more like a credit card as it’s up to you when you draw on the funds. You can access the money when you need it. The debt (including interest) gets paid off in instalments, but you don’t pay interest on the whole loan amount – you only pay interest on the money that you actually use.

Special or limited purpose loans

Some loans, like a green loan, are only offered for a specific purpose. These are called special or limited purpose loans. They’re usually offered at a lower interest rate but will likely come with eligibility criteria.

Risk-based pricing

Most lenders now tailor the loans offered to you and give you a ‘personalised’ interest rate. The rate you get is based on the probability (or risk) of you defaulting on your loan. To work this out, they’ll look at your credit history, financial situation, the loan type, the loan amount and a range of other factors to build your unique risk profile.

It can mean you’re offered a lower rate if you’re considered ‘lower risk’ – that is more likely to pay back the loan. But if you’re ‘higher risk’, you’ll probably be offered a higher rate.

Risk-based pricing has become more common since comprehensive credit reporting (CCR) was introduced. It means credit providers must include extra ‘positive’ information in your credit report, such as the type of credit you hold, the amount of credit and also if you pay your bills on time. Before CCR was introduced, credit reports only showed the ‘black marks’ or negative credit events (such as missed payments or defaults), so they didn’t give the complete picture.

Other ways to pay

Of course, you don’t have to take out a green loan to pay for your eco-friendly choices. You can apply for a standard personal loan. But the benefit of the green loan is that, as long as what you're buying is eligible, you access a reduced green loan rate.

You could also look at other finance, like a home loan top up. But you’ll be paying the same interest as your home loan. Your repayments will also stretch out further, costing your more, as the loan amount will simply be added to your existing loan.

And if it’s a smaller purchase, you might consider simply using your credit card. But remember, credit cards typically have a much higher interest rate than personal loans, so it could end up costing you significantly more in the long run.

The right loan for you

Although there are several different options when it comes to your green loan, it’s simply a matter of working through them to decide what’s best for you. Ask yourself:

  • What’s the interest rate like? Before choosing your loan type, you should compare green loan rates to find the lowest possible rate available
  • Do you prefer a fixed or variable rate?
  • Can you realistically make repayments on time?
  • What is the length of the loan?

And remember to consider any fees and charges. Then simply compare the types of green loan offers that meet your needs to find the one that suits you best.

Chapter 5

How much does a green loan cost?

The type of green loan, its conditions and how quickly you pay it back impacts how much the loan costs you over its lifetime. 

To work out the overall cost of your green loan finance, you need to factor in:

1. Loan Interest Rates: 0%, Fixed or Variable - The biggest factor in how much a personal loan will cost you is the rate of interest you’ll pay on the amount borrowed. If you are opting for a variable rate loan, it is best to also calculate a worst-case scenario, one where a loan’s interest rates rise significantly in the future to be sure you have a comfortable buffer in the event things change.

2. Upfront Fees - The ‘establishment’ or application fee can vary greatly, it’s an area where shopping around can make a difference. Be aware that fees are likely to be more considerable when you are paying 0% interest. 

3. Ongoing Fees - Ongoing fees that occur throughout the loan:  

  • Any monthly or annual fees (e.g. account keeping fees)
  • Any default, dishonour or missed payment fees
  • Any other hidden fees — check the terms and conditions to find these!

These three costs can be combined to create a comparison rate. As long as you are comparing the same green loan terms and amount, a comparison rate helps you to compare the cost of different loans. 

There may be fees for early repayments if you pay back the loan in full early. Balance these against the benefit of reducing the amount of interest that you pay on your car loan by making extra repayments reducing the amount you owe. Always shop around and use comparison tables, a repayment calculator and the comparison rate as a guide.

Green loan interest rates

The interest rate, also known as Annual Percentage Rate (APR) or Advertised Rate, is the percentage that you’ll pay on top of the amount you borrow in interest, usually expressed as an annual rate. Interest rates vary depending on the lender, your credit history, your repayment schedule and a range of other factors. They are based upon the lender’s calculation of risk (for you as an individual and the market as a whole) and their underlying costs.

Many lenders market their green loan products using a ‘headline’ advertised rate, which represents the best or cheapest interest rate they are able to offer a customer. Often this low rate is available to only a small proportion of borrowers.

Before you apply anywhere, it pays to do your research and get a personalised rate from a number of providers. You just need to make sure that the lender’s quote process is ‘credit score friendly’. That is, they only conduct a soft-check on your credit file, which won’t impact your credit score. Asking Plenti for a RateEstimate will not affect your credit score. 

The lowest green loan interest rate does not necessarily mean the best green loan. You need to consider the total cost of the loan including interest, fees and other costs to truly assess the value of any interest rate on offer. So while some green loans can be advertised as zero percent interest, you need to look further to assess the total cost of the loan. 

Green Loan interest rates will vary according to the type of the loan. Usually a secured green loan will attract a lower interest rate than the rate for an unsecured green loan, because you’re offering something as security against defaulting on the loan. 

Green loan comparison rates

The comparison rate represents the overall cost of a personal loan, including the interest rate and fees, expressed as an annual percentage. As a result, the comparison rate is usually higher than the interest rate charged on the loan. 

Under the National Consumer Credit Protection Regulations, lenders must provide a comparison rate when they advertise an interest rate. 

For green loans, there is a standardised measure for how comparison rates are calculated:

  • For personal loans 3 years and under comparison rates are calculated on a $10,000 loan amount over 36 months
  • For personal loans 4 years and over comparison rates are calculated on a $30,000 loan amount over 60 months

Whilst the comparison rate is a useful tool for comparing personal loans on a like for like basis, it’s important to remember that not all costs are included. For example, you still need to consider late payment fees, early repayment fees and deferred establishment fees.

Green loan repayments

Your personal loan repayments are the amount you agree to pay to your lender on a regular schedule. Repayments can be weekly, fortnightly or monthly and vary by lender. Whereas interest rates and comparison rates can sometimes hide the true cost of a loan, your monthly and total repayments provide a clear basis for comparing the value of personal loans from different lenders.

When making your comparisons, however, it is important that the loan repayment calculations have been quoted inclusive of any ongoing fees for all lenders.

Upfront fees

Upfront fees, also known as establishment fees or credit assistance fees, are ‘once-off’ charges that are applied at the commencement of a personal loan. These fees can be:

  • A flat fee (e.g. $150) that applies regardless of the value of the loan
  • A tiered fee (e.g. $250, $500, $750) based on the total amount borrowed
  • A percentage fee (e.g. 4%) based on 
  • the total amount borrowed; and
  • the credit or risk profile of the customer

Upfront fees are usually added to the amount you wish to borrow. For example, if you are borrowing $10,000 with an upfront fee of $300, the total loan amount on commencing the loan will be $10,300.

Why is this important? Well – that interest rate you are being offered will be applied to the total loan amount – inclusive of your upfront fee. In the case of a small upfront fee, the difference might be a few dollars on each repayment. On an upfront fee of 4%, however, you could be paying $1,200 on a $30,000 loan, meaning you will be charged interest on a $31,200 balance. Ouch!

If you’re considering a lender with a zero % or low-interest rate, it’s important you check to make sure there isn’t a high upfront fee that outweighs the benefit of the lower rate. This is particularly true of percentage-based fees that flex with the amount being borrowed.

Checking the comparison rate and the proposed repayments will allow you to assess this compared to other lenders.

Ongoing or monthly fees

Ongoing fees, also known as account keeping fees or loan management fees, are fees that are paid every month across the life of the loan – without reducing the amount you owe. For example, a $10 monthly fee on a 5-year loan adds up to $600 across the life of the loan. That’s a lot of money that’s not going to repay your loan principal.

Banks and larger lenders often have lower upfront fees that are offset with a monthly fee of $10 to $13. This means the net cost of the upfront fee and the monthly fee may be higher than you otherwise would have paid for a lender with a higher upfront fee and no monthly fees. In the end, it pays to do the maths on ongoing fees before you commit to a particular lender.

Early repayment fees

Repaying your green loan as quickly as possible is a clever strategy as it will reduce the overall amount of interest you pay on your loan. However, if you do find yourself in a position to do this (well done!), the last thing you want is to be hit with an early repayment fee (also known as an exit fee). 

Early repayment fees can range from $0 up to $800 or a % of the loan value on repayment, with $150-175 being the most common fee. That’s a fair amount for you to pay for doing something that is good for you. It, therefore, pays to read the fine print on fees before you commit to a car loan.

It’s worth noting that some lenders have set conditions that trigger an early repayment fee that varies with the type and duration of the loan. For example, unsecured fixed interest rate personal loans with the banks often have far stricter early repayment terms than for their variable rate loans.

Lenders with no early repayment fees ultimately provide you with the highest degree of flexibility in how and when you repay your loan. Plenti does not charge any early repayment fees. 

Market Insight. The average Plenti borrower takes just 28 months to repay a 3 year loan and 43 months to repay a 5 year loan. That’s a lot of people who are saving thousands of dollars in interest thanks to no early repayment fees.

Penalty fees

We all know we should try to avoid penalty fees at all costs — it’s just throwing your money away — but we’ve all missed a direct debit from time to time. It’s why you should always make sure you are aware of any penalty fees and make sure they are not too onerous.

The most common penalty fee associated with personal loans is the ‘default’, late or missed payment fee, which usually arises where there are insufficient funds in your nominated account on the day a payment is due. Late payment fees range from $20 to $35, however, some lenders will waive the fee if the account is brought up to date within 3 days.

It can help to make a budget of your expenses before you agree to the personal loan so that you know that you’ll comfortably be able to make repayments. You should also consider opening separate savings accounts to transfer funds into each payday that separate from your daily transaction account to ensure funds are always available. When it comes to penalty fees, it is a case of buyer beware.

Always take the time to read the loan terms and conditions and look out for any other hidden fees, including ‘new age’ penalty fees like charges to receive paper statements.

Now that you understand the building blocks of a green loan, you’ll be better able to decide which loan suits you. Planning and considering your situation upfront will help when comparing what green loan products are available that might really fit your needs, and offer the best value. 

Chapter 6

How do I compare Green Loans? 

There is no one size fits all when it comes to green loans. It really comes down to finding the one that is going to be the best fit for you. 

So how can you decide which is right for you? You will first need to make a few key decisions. Planning and considering your situation upfront will help when comparing what green loan products are available that might really fit your needs, and offer the best value. 

1. Loan amount: How much do you really need?

To decide how much you need to borrow, do some research and budget to work how much (approximately) you are going to need for your solar panels or home battery. It’s smart to only borrow what you really need, rather than all that may be offered to you by a lender.

Remember, when you borrow money to pay for something, the actual ‘cost’ of that item becomes much higher when you factor in the cost of the loan. For example, if you borrow $20,000 to buy a car with a 5 year Unsecured Loan and a fixed interest rate of 12.50%, once you factor in interest and fees that car may actually cost you around $27,417.

2. Repayments: How much can you afford to repay?

Look at your everyday budget, or create one, to see how much you can realistically afford to put towards repayments. It’s always good to give yourself a buffer; failure to make a repayment at any time can cost you a lot. Are you expecting any major expenses or changes in income in the next few years, perhaps changing where or how much you work, or perhaps hoping to have a baby? Be sure to build this in.

Whether you receive your income weekly, fortnightly or monthly, you need to know how much you have left over at the end of each pay period and how this will align with your repayments. This is to ensure there are no missed payment surprises. It may be worth opening a separate bank account for your repayments and transferring these funds in on payday so you are never caught out.

3. Loan term: How long will you need to repay?

Divide the loan amount by your planned monthly repayment to get a ballpark amount of time you’ll need to repay the loan. A longer-term loan might seem attractive as it means lower monthly repayments, however the overall (lifetime) cost of the loan is significantly higher because you’ll pay more in interest, and potential fees. That being said, provided you look for a loan with flexible repayments you’ll be able to take advantage of any future increases in salary that may allow you to pay down your loan faster without penalty.

4. Loan type: Decide between a secured or unsecured loan?

Do you have an asset that you are willing, or able, to put up as security against the loan? Perhaps the property you are improving with green energy products? If you are confident in your ability to repay the loan, then a secured loan will get you a better rate and may unlock access to greater funds. Be aware however that your asset will be at risk if you can’t make the repayments.

5. Compare: Start to request and examine your personalised offers

So now you know roughly how much you need to borrow, what you can afford as  a repayment, and how long you’ll need to repay your loan. Nice - next you can start to plug these values directly into lender or comparison sites to get an estimate of your personalised interest rate and repayments. 

Start to play with different combinations, such as different loan terms or repayment amounts, and match them against your needs. Need more help deciding? There are many third party agencies (that don’t sell loans) that both rate and compare a broad range of loans.

Canstar is one of the most established financial comparison sites, and they’ve been comparing products without bias since 1992. They release annual star-ratings for a range of loans from many providers. To do this Canstar comprehensively and rigorously examines a broad range of loans available across Australia.  To come up with an overall score, they award points for:

  • Price — comparative pricing factoring in interest and fees.
  • Features — like the complexity of the application, the time involved before settlement, product management, customer service and loan closure.

These are then aggregated and weighted to produce a total score.   This means Canstar’s ratings are reputable and transparent, so you can trust the information they provide but still dig deeper if you want to. Other comparison sites can also be useful, however, always check around, as some may have a ‘sales’ element - that is they may receive money for the people that visit their website en route to a particular lender.

So if the best rate isn’t offering it may not show up on their comparison. They also have ‘promoted’ or ‘featured’ loans, which they are paid to highlight, even if those loans do not truly reflect the best value loans on the market. 

Another way to get information on your lender and loan is to read feedback from real (verified) customers’ on ProductReview.com.au.

What questions should I ask to choose a loan?

Here’s a useful checklist to be confident you understand your loan.

  • What is the interest rate and the comparison rate?
  • How do these rates compare to other loans?
  • What are the fees and charges? eg Upfront, ongoing, early exit.
  • What are the terms and conditions?
  • Do the loan term and loan amount fit your needs?
  • Can you afford the repayments?
  • Are you comfortable with the lender? Have you checked its reputation and accreditation?

Comparison rates are a good starting point, but you still need to decide what will work best for you.  The costs involved are a major factor, but once you have shortlisted a few loans with similar costs, make time for these final checks: 

  • Are there flexible repayment options? Usually, you can choose between weekly, fortnightly or monthly repayments according to what suits your pay cycle. However, not all lenders offer this.
  • Compare a loan’s conditions and fees around making extra repayments and paying the loan off before the end of the term. This can be a great way to reduce the overall cost of your loan - but not if you’ll incur extra penalties.
  • What are the options for managing the loan over time? Check and compare how easy the loan will be to manage - the repayments, your personal details, any refinancing down the track. The option to manage your account online is often available but not always, and some lenders have more functionality than others. Using direct debit for repayments is common, yet without it monthly repayments will be much less convenient and you are more likely to be penalised for late payments if you aren’t perfectly disciplined.

With a little planning and budgeting up front, you’ll be confident that you’ve equipped yourself to best compare the green loans on the market, and to choose the one that is best suited to you.

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How do I apply?

Applying for a green loan is quicker and easier than you might think.

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Am I eligible?

Application approval and how much you can borrow, varies from loan to loan, and lender to lender.  For starters, you will need to be:

  • Over 18 years of age, and in some cases over 21.
  • An Australian citizen or permanent resident.
  • Earning at least $25,000 per year, from a regular, proven source of income. If you are self employed you will have to provide additional information.
  • The holder of a provisional or full driver’s licence.

If you have existing loans or debt there may be fewer options open to you. It’s also a good idea to check the eligibility criteria for any lender you are considering before submitting an application to avoid any unnecessary negative impact to your credit score. Some lenders will have a higher salary threshold, and make a point of only lending to those with a high credit score, in order to offer a low interest rate. 

What is the process?

Once you have shortlisted your preferred lenders you can usually request a quote or estimate of your estimated borrowing power and some loan options, before you officially apply. This is a good idea, as this process won’t affect your credit score. 

Depending on the lender, you can then apply online, over the phone or in-person if the lender has physical branches. You’ll usually need to verify your identity, connect the lender to your online banking so they can verify your income and expenses and potentially provide additional information based on your loan purpose. For example, if you are applying for a secured loan, you’ll need to provide information about what you are providing as security.

For a green loan, you’ll likely need to advise who you are planning to engage to install your solar panels, so your loan provider can ascertain if they are a reputable and accredited service provider. 

If approved, you’ll then need to accept your loan agreement. The majority of green loan agreements can be signed and accepted electronically.

What documents will I need to apply?

To process your application a lender will typically ask you to show 

  • proof of identification: an Australian drivers licence or a passport
  • proof of address: copies of your recent utility bills.
  • verification of a stable income: payslips, bank statements or tax returns.
  • details of your expenses and liabilities: bank, credit card and loan statements.

Plenti has a streamlined online application portal, where you can connect your bank details securely. That’s one of the ways we make applying for a loan simpler, faster and easier than ever. 

What will your lender consider?

Your lender will review:

  • Your employment stability
  • Your income (eg salary, rent, interest etc)
  • Your expenses (eg mortgage, groceries etc)
  • Your repayment history on other loans
  • Credit agency/bureau information (Credit Report and Score/Rating)
  • Which Green Energy installer you are planning to engage, and are they an accredited service provider.

These findings will determine if you’ll be approved, and if so then for how much you’ll be able to borrow. Often the interest rate offered will be lower if you have a good credit rating. If you’ve had problems paying your bills and debts in the past, you may only be offered loans at higher rates.

What is my Credit Score?

Based on the information in your credit report your credit score, or rating, is a single number that sums up how trustworthy you are as a borrower. Credit scores are typically on a scale of 0 – 1,200 or 0 – 1,000 depending on the credit agency. The higher your credit score, the more ‘reliable’ you are perceived to be and the greater the likelihood of your loan being approved, at a lower interest rate. Now that the industry uses comprehensive credit reporting (CCR), credit reports are more detailed so that lenders have a better — positive and negative — picture. 

To calculate your credit score, credit agencies will assess:

  • How much money you’ve borrowed in the past
  • How much credit you currently have
  • How many, and what type of credit applications, you’ve made (This can now include payday loans and buy-now-pay-later services such as AfterPay.)
  • Whether you usually pay your bills and loan repayments on time
  • Any loan defaults
  • Any court judgments
  • Information from your bank, telco, insurance and utility companies
  • Your age, address and employment situation
  • Up to two years of your general financial history

You can request your report and rating/score from credit rating agencies before you go through with a loan application. This does not usually impact your credit score. Be aware that because there are multiple credit agencies, the one your lender uses may not be exactly the same.

Get a free credit check from one of Australia’s major credit rating agencies: Equifax, Experian or Illion.

How do I improve my chances of getting approved?

Applying for a green loan has the potential to impact your credit score, particularly if your application is declined. It’s therefore important that you put your best foot forward before beginning the application process. We’ve assembled a useful selection of tips to help you submit a strong loan application.

1. Make sure you pay your existing debts on time: Did you know that repayments that are more than 14 days late may be recorded on your credit file? While less serious than a default, a series of late repayments can have an equally negative impact on your credit score. Making late repayments also sends a bad message to a prospective lender and may result in you paying higher interest rates. If you do ever find yourself behind on your repayments, it’s important you contact your lender directly. Working with your lender toward a mutually beneficial outcome can help to protect your credit score. Remember, it’s far easier to protect a good credit score than it is to bolster a weak one.

2. Only request as much as you need to borrow: When assessing your application a lender will look at whether you can service a loan. What this means is that, after all your expenses, do you have income left over to meet the repayments of your proposed loan. If you request an amount that is more than your finances say you are able to repay, it’s highly unlikely you will get approved. In some cases, a lender may offer you a longer loan term to reduce your repayments but it’s best to do your homework first. Use a repayment calculator and budget to figure out what you can reasonably afford.

3. Review your credit history: Australia has three main credit bureaus, Equifax, Illion, and Experian. You can request a free copy of your credit score once a year. Once you’ve verified your identity (i.e. with a driver’s license, passport etc.) the bureau is required to provide you with your credit report within 10 days. Your credit report will provide an overview of your credit history, including previous loans, existing debts, and your performance as a borrower. You should ensure all the information contained in your credit report is accurate, and if not, contact the bureau to have it remedied. This will have a direct impact on your credit score. If you’re unsure of how to interpret your credit score, see this ASIC guide.

4. Pay down existing debts: Lenders may look unfavourably on an application for individuals with large amounts of debt, particularly if the debts are already at the limits of what you can afford. It’s important to demonstrate a concerted effort to repay your existing debts to a reasonable level. This applies, even if your personal loan is for the purpose of consolidating your debt. While a move to lower interest rates makes sense, it may be harder to get approved unless you’ve opened up some additional capacity between your income and expenses.

5. Minimise your credit card balance: Using a credit card can be a great way to help boost your credit rating by demonstrating you are financially responsible. However, you need to manage your credit card carefully to ensure your balance is consistently low. Failure to make repayments can have an equally negative impact on your credit score. Finally, lenders are now required to assess your application based on your credit card limits, not the outstanding balance. If you have unused cards or excess limits consider reducing them before you apply for a new loan. 

6. Within the advertised range, most lenders apply loan capping rules: This means they adjust the maximum loan amount you may be eligible for based on your credit score, income, mortgage status and a range of other factors. This maximum loan eligibility will usually be communicated to you when you get an initial quote or rate estimate from a lender.

7. Counter-offers: Even once you have applied with a lender for a specific loan amount, they may come back to you with a ‘counter-offer’. A ‘counter-offer’ is a conditional approval based on a loan amount that is lower than the amount you’ve requested but one the lender believes you can afford and meets their responsible lending requirements. Whilst it may be tempting to borrow as much as you can, make sure your repayments will be realistic to make within your budget. This will be a significant factor in determining whether your loan will be approved.

At Plenti, we assess your loan application in line with our credit criteria and our responsible lending obligations. Whilst no guarantee, following the tips above will go a long way to improving the prospect of successful loan approval.

How long will it take to get approved?

At Plenti, once your  loan application is approved (and you have accepted your loan contract) your  funds are transferred into your account the following business day. 

The funds will be transferred  into the same account that you have nominated for your direct debits. 

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