When it comes to green loans, Australia is a pretty good place to be. There’s a strong demand for all things renewable. More Aussies installed solar energy in 2020 than anywhere else in the world. There’s a whopping 2.59 million solar panels from the more than 21% of Australian homes looking to solar energy.
Batteries are on the rise too, for good reason. Over 22,600 home battery systems were installed in Australian households in 2019. Over one-third of Australian households that have installed a home battery system and are taking control of their energy-storing it for peak periods or simply being able to live off the grid.
But as with any kind of finance, you need to be confident with your choices. To make it easier, we've created a guide to all things green loans in Australia.
What is a green loan?
A green loan is simply a type of personal loan, but it’s for a very specific purpose – to fund the purchase and installation of approved clean energy products. It’s also sometimes called green financing or a renewable loan. It’s a great way to help you lower your energy bills and help the planet.
And because they help you play a part in a more sustainable future, green loans are often offered at a lower interest rate than traditional loans.
How does a green loan work?
Green loans are a handy way to spread the expense of cost-saving clean energy technology over monthly repayments, so you’re not faced with a big lump sum up front. But just like any other loan, a green loan, is made up of several parts so there are a few choices you’ll need to make when it comes to finding the right finance for you.
Green loan renewable energy products must meet strict standards of efficiency and performance, but you can use them for a wide variety of purchases including:
· 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.
You also need to decide the type of loan you’re after. It can be:
Secured – something of value, like a car, home or term deposit, can be used as security against the loan, helping you access a lower rate and giving you access to a larger loan amount or longer term. On the flip side, you give your lender the right to seize your asset if you don’t keep up with your repayments.
Unsecured – where no assets are used as security against the loan. Most personal loans are actually unsecured as the application and approval process are usually much quicker and you get more freedom to use the funds.
Next, decide the type of interest you’re after. It can be:
Fixed – the interest rate remains the same for the life of your loan but is usually slightly higher than the market rate when offered.
Variable – the interest rate moves up and down with the market, but usually starts lower than the fixed rate.
Green loans also come with 0% interest payment plans, where you don’t pay any interest at all – you only pay the monthly fee.
Lastly, you’ll need to decide on the loan term you’re after (which is the time it will take you to repay the loan). And also remember to factor in any other fees and charges, including:
Upfront fees – also called establishment fees, it’s the cost to set up the loan. They’re usually capitalised or added to the loan (increasing your total loan amount), becoming part of your regular repayments.
Monthly fees – also called account keeping or loan management fees, they cover the ongoing cost to your lender to maintain the loan and are in addition to your monthly repayments.
Penalty fees – if you miss a repayment or don’t have enough money in your bank account when a loan repayment is due, you’ll be charged a default fee.
Early repayment fees – also known as exit fees, you can be charged extra if you choose to repay your loan in full prior to the end of your loan term.
Why should I get a green loan?
Of course, just because you need finance for a green product doesn’t mean you have to apply for a green loan. You can use a credit card, apply for a personal loan or use a home loan top up.
But green loans can provide a lower interest rate than traditional personal loans and credit cards, helping you with affordable repayments to access the benefits of clean energy technology. And with terms of up to 7 years, you can spread the cost of your investment over a time period that suits you.
What about the government green loans program?
You might have also heard about the government green loans program. The one you’re probably thinking of was available back in 2010 to help households tackle climate change by reducing their greenhouse emissions. That scheme hasn’t been around for quite some time now. However you may also be eligible for a grant, rebate or subsidy from your local council or state government, so check with them what’s on offer.
Who is eligible for a green loan?
To qualify for a green loan for solar energy you simply need to:
· be an Australian permanent resident or citizen
· be aged over 21
· have a good credit rating
· have a regular source of income.
And remember, the product you’re applying for needs to be eligible for a green loan. To find out if what you’re planning for is eligible, simply check with your green loan provider.
How do I compare green loans
It’s important to compare green loans before you commit to new finance so you can find the right option for you. Start by asking 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?