When it comes to choosing the best green loan, there’s no one-size-fits-all. Your loan conditions should be tailored to suit your budget, income and renewable energy goals.
For many people, an unsecured green energy loan is the best option.
Why are they popular?
An unsecured green loan doesn’t require an asset (like a car, or house) to protect the lender. This means you can quickly and easily access the funds that you need to go green, without putting your assets on the line.
Instead of securing the loan with collateral, the lender looks at your credit history and your ability to make repayments. The loan is paid back over an agreed period of time, with a low green loan interest rate. It’s that simple!
Who provides unsecured green loans?
Banks, credit unions and online loan companies offer unsecured loans, with some specialising in green energy loans. Each lender sets their own eligibility requirements and interest rates. Online lenders are often the fastest, most convenient option, as the entire process is handled online.
Do you need some help applying for your loan? Choose a green energy loan provider with a solid against reputation for good customer service. Check customer service ratings and reviews to find one that’s right for you.
How much can you borrow?
While some Australian lenders of unsecured green loans will provide as much as $70,000 to be paid back over seven years, most will allow you to borrow between $2000 and $50,000, paid back across six months to five years. Typically, the amount of a green loan will be around $10,000 - $20,000.
Interest may be fixed or variable and many lenders will allow you to make early repayments, which reduces the interest costs.
At Plenti, we believe in tailoring unsecured green energy loans to suit your unique financial situation and lifestyle. This means rewarding your strong credit history with attractive rates that are personalised to you and offering the flexibility to pay it back faster. In fact, we’ll never charge you fees or penalties for paying your loan back early.
It’s your life – you’re in control.
How much interest will you pay?
You might be surprised to discover how even a small difference in personal loan interest rates can impact your loan over many months or years. And there’s a special kind of green loan that’s offered with a 0% interest payment plan. That’s right, 0% interest green loan rates, so you won’t pay a cent in interest.
Have a think about whether you prefer a variable interest rate, rather than a fixed rate. A variable rate could fluctuate throughout the life of the loan, which means your repayments may increase or decrease from time to time. On the other hand, a fixed interest rate provides a sense of certainty. You’ll know exactly how much will come out of your bank account each month and you’re protected from the possibility of future interest rate rises.
A loan with a variable interest rate usually has no early exit fee. This means you won’t be penalised if you pay back the loan early. Consider the full picture when deciding which option works best for you.
What about hidden costs?
Remember, a zero or low interest rate is only one part of the story. Application costs, early repayment fees and account keeping fees are just some of the extra charges that could apply. Keep these in mind when choosing a provider.
Do you hope to pay your loan off sooner? Look for lenders who don’t charge early repayment fees so you’re not penalised for your efforts.
Will you be approved?
Expect each lender to check your credit history, current debt and income so they feel confident you can repay the loan. This is particularly important for an unsecured loan as the lender can’t claim your assets if you fail to make repayments.
It’s a good idea to shop around and compare the offers you receive from different lenders to make sure you’re securing the best personal loan rate.
What if you’re self-employed?
If you’re self-employed, applying for a green loan (secured or unsecured) can be challenging. Some lenders may be reluctant to offer you a loan because of concerns about your financial stability.
But hang in there. While people who are employed full-time find it easier to obtain personal loans, those who are self-employed can still qualify. You might just have to jump through a few more hoops.
Lenders will often ask for additional documentation from self-employed people, including:
- The last two years of your personal and/or business tax returns
- Financial statements showing the profit/losses accrued by your business
- Recent bank statements
- Documents showing outstanding loans or credit card debts
- Proof of rental income from any rental properties may you have
- An Australian driver’s license, passport or a proof of age card
- A Notice of Assessment given to you by the ATO (Australian Taxation Office) for the past two years
- Your business’ ABN, address and licenses
If you don’t qualify for a green loan, there are other options. For example, a low doc loan is a personal loan that requires less documentation, but interest rates are usually higher than standard loans.
As a self-employed borrower, it’s wise to seek out a lender that offers flexible repayment periods with both fixed and variable interest rates to give you more options.
Know where you stand.
Knowledge is power! Find out your credit score before you apply for an unsecured loan. You can do this online for free through government financial guidance site Moneysmart, or financial comparison sites like Canstar.
Your credit score takes into account information like the number of credit applications you’ve made and the amount of money you’ve borrowed. It also notes your history of repaying debts on time.
A typical credit score will fall between zero and either 1000 or 1200, depending on the credit reporting agency. The higher the score, the better!
Checking your credit score is a worthwhile exercise. It can help you negotiate better deals or understand why a lender rejected you. If you spot any errors in your credit report, you can fix them for free by contacting the credit reporting agency.
Give it a polish!
There are ways to clean up your credit report and increase your credit score to improve your chances of being approved for a personal loan:
- Pay your rent, mortgage and utility bills on time
- Make credit card repayments on time and try to pay more than the minimum repayment
- Lower your credit card limit
- Limit how many applications you make for credit
All of these things will help your credit score to improve over time.
You can check your credit report for free by contacting one of these credit reporting agencies:
- CheckYourCredit (illion)
You’re in good company.
The vast majority of green loans are unsecured. With a quicker approval process and greater freedom in how you spend the funds, it’s easy to see why this is an attractive, hassle-free option for lower loan amounts.
What’s the catch?
With your personal assets safely out of the firing line, the lender can’t claim your possessions or the contents of your bank account if you default on the loan. But remember, if you can’t make repayments, your credit rating will be affected. If your lender passes your account onto a collections agency or takes legal action against you, this information is also recorded on your credit report. A low credit score makes it harder for you to obtain loans or credit in the future.
Secured Vs Unsecured
If you own an asset, like a car, home or term deposit, you may be able to obtain a lower interest rate with a secured green loan. When applying for a secured loan, you agree that if you can’t make repayments, the lender gets to take your asset and on-sell it to pay for the loan.
Lenders offer a lower interest rate for secured loans because they view them as less risky. Providing an asset to guarantee your loan may also mean you can borrow a larger amount or pay it back over a longer period than you could with an unsecured loan.
Keep in mind, the approval process is often longer for a secured loan, with more documents required, and there are more restrictions around how you can use the funds.
When deciding between a secured and unsecured green loan, consider the pros and cons. While a secured loan may offer lower interest rates, are you willing to risk the asset that you provide as collateral?
You’ll never have to worry about losing your assets if you default on an unsecured loan, but it’s likely to come with higher interest rates and your credit rating will take a hit if you can’t make repayments.
Whether secured or unsecured, a green loan should be customised to your unique circumstances so that you can move forward with confidence on your own journey to sustainability.