In today’s world, doing good for the environment can’t be an afterthought. Reducing your eco-footprint takes a lot of planning, and it can be expensive in some cases. This is why it’s important to know about green loans and how to apply.
A green loan is a type of loan specifically designed to help you make an eco-friendly, green purchase. They come with lower interest rates than average, helping you afford investments and products that make the world a better place. However, like all types of loans, it’s important to consider the pros and cons before you sign off on a new line of credit. In this guide, we’ll answer the questions: what are green loans and how do you apply?
What Is a Green Loan?
To begin, let’s define green loans. While you’re probably already familiar with different types of loans, a green loan is a very specific type of lending. When a financial institution offers a low-interest loan with the specific request that it be used towards something considered environmentally friendly, this is a green loan.
There are different types of green loans:
- Personal loans: An unsecured personal green loan is used to buy green products for your home, like solar panels or eco-friendly appliances.
- Car loans: Similarly, a green car loan is for choosing environmentally friendly vehicles like electric cars or hybrid cars.
- Home loans: Finally, we’re starting to see more green home loans in the marketplace, though this is a newer concept.
However, you need to read the fine print closely. You can’t use these loans to purchase anything. You need to meet the lender’s criteria for a green, energy-efficient purchase. Each lender has its own rules and requirements, so always make sure your purchase is covered.
What Products Are Covered Under Green Loans?
Aside from green car loans and home loans which are clearly for vehicles and homes, what products can green loans be used for? As explained above, these vary depending on the lender. In most cases, you need to prove the product is more efficient or reduces reliance on energy grids. The most common way to determine if a product is the right fit is through its energy star rating.
Some products typically covered under green loans are:
- Green vehicles
- Home insulation
- Double glazing for windows
- Solar panels
- Home ventilation
- Energy-efficient appliances
These green loans are used as an incentive by lenders to encourage customers to purchase more eco-friendly products. This means the interest rates are usually better on these loans compared to others from the same provider. Additionally, green loans have fever application fees and restrictions.
How to Apply for a Green Loan
Now that you know how green loans work, how do you apply? The application process is very similar to other types of loans. First, you’ll need to contact your lender. If you don’t have an existing home or auto lender, you might need to shop around for the right deal. Interest rates vary by lender, so you might get a better deal by keeping an open mind.
From there, you confirm your eligibility and get pre-approval. This is usually based on your credit rating, debt-to-income ratio, and whether you can afford to talk on additional credit. Like all loans, a better credit score helps reduce your overall interest rate throughout the life of your green loan.
Once you’re pre-approved, you need to determine just how much your energy-efficient investment will cost. You can source a quote from providers as long as the retailer is approved by your lender. For instance, if you’re getting solar panels installed on your home, you’ll need an accurate estimate of how much this will cost. When you have a quote, you’ll share this with your lender for final approval.
In most cases, the lender pays your invoice directly through the retailer. You’ll then be able to begin repaying your green loan through your provider at a lower interest rate than average, helping you afford your new eco-friendly investment in the environment.
How to Find an Approved Retailer
Finally, you might wonder how you can find an approved retailer for green loan products. Again, this retailer needs to be approved by the Clean Energy Council. Luckily, it’s easy to learn more about providers near you through the Clean Energy Council’s consumer website.
Through this online portal, you can discover ways to reduce your emissions through local providers. If you have a retailer online who isn’t on this approved list, you’ll need to check directly through your lender.
Is a Green Loan Right for You?
Ultimately, it’s up to you whether a green loan is the right fit. Many Australians consider green loans to be an effective way to afford eco-friendly products, many of which can have a large upfront cost. Like with all purchases, consider whether the investment is worth the savings (if any) long-term.
From there, calculate your payoff plan before you invest in a green loan. If you need help tailoring the best debt reduction plan for your needs, the team at Debt Busters can help. Contact a member of our team today on 1300 368 322to discuss your unique situation.