Green loans were first introduced as a government initiative designed to encourage individuals to make more energy-saving home improvements.
It is also designed for businesses that want to go green by implementing eco-friendly products and services. Commercial lenders or peer lending which are loans from groups of private individuals are the primary sources for obtaining green loans.
Home renovation projects that qualify for a green loan include composting, recycling, double glazing, janitorial uses of eco-friendly products, and maintenance of community gardens.
Some popular providers of green loans in the U.S. include the following:
What is a Green Loan?
In 2016, Lloyds Banking Group launched an initiative known as a green loan to support clients in reducing CO2 emissions.
The scheme was a loan that allowed a borrower to spread the costs of improvements over 10-25 years.
One of the main ways a green loan differs from a standard loan is that repayments are added to your electricity bill.
Lenders abide by the ‘golden rule,’ which states that the cost of the loan should not surpass the cost of energy saved.
Green loans can be used for home remodeling, purchasing and installing solar panels, or roofing costs.
Green landscaping, which focuses only on utilizing your own aesthetic land without using hazardous chemicals, also qualifies for this kind of loan.
In the case of peer-to-peer lending, green loans may come from individual investors. You may receive a loan for a single lump sum from one person or small amounts from numerous people to fund your loan.
There is a fixed rate and credit history is considered a factor in the loan determination. Peer lending has more flexible terms than traditional lending.
Green Lending in Mortgages
Individuals can obtain green loans as ‘green mortgages.’
Lenders offer green mortgages to borrowers on projects that are built or renovated with environmental factors in mind.
Green mortgage borrowers receive a 1% discount on the mortgage rate for an existing home and up to a 1.25% discount for new construction.
Contents of a Green Loan Agreement
There should be sustainability covenants that a borrower would commit to in the green mortgage agreements, such as:
- Reducing energy intensity in their buildings
- Managing the buildings more efficiently
- Engaging tenants on sustainable practices
- Providing energy performance data
Benefits of Green Lending
One of the benefits of green loan services is that borrowers can finance eco-friendly home improvement services, such as solar panel installations and weatherization, using sustainable materials.
Annual percentage rates are like personal loans and they can start from around 6% up to around 36%. Loan amounts usually go up to $100,000.
Here is a summary of green lenders offering green loans in the U.S.:
How to Get a Green Loan
Getting a green loan from an online lender is the same process as for any personal loan. Here are the main steps.
Check your credit report. Review your credit report for errors that could cause your credit score to be low. Make sure your credit profile is clean and up to date before you apply. It’s easier to fix issues beforehand.
Calculate your monthly payments. Use a personal loan calculator to see how the new loan fits into your budget. A calculator shows what rate and repayment term you’ll need on the loan in order to afford the monthly payments.
Compare lenders. A good rule of thumb is to choose the lender that offers the lowest APR. Other things you can compare include how fast a lender can fund your loan, whether they allow cosigners, and what credit scores are needed.
Pre-qualify. Many online lenders let you pre-qualify online to see what rates and terms you can be offered. This often only requires a soft credit check so it won’t hurt your score. You can pre-qualify with multiple online lenders on Financer.com and compare offers from different lenders at the same time.
Gather documents and apply. If you choose an offer you pre-qualify for, you can go ahead with the application process and provide additional information such as your Social Security number, W-2s, and address details. Submitting an application will trigger a hard credit pull.
Other Green Loan Options
You may receive a lower interest rate for green loans from your local credit union. A few examples include Velocity Credit Union in Texas and Elevations CreditUnion in Colorado. This is because some credit unions partner with local governments to offer lower rates on green loans.
If you have enough equity in your home, you may be able to borrow from it to pay for a green home improvement project. Home equity loans come in lump sums and you repay them in fixed installments.
Credit cards are best for smaller DIY projects. Contractors may charge a small fee if you pay with a credit card. You can also use a store card from a retailer if you have one, and even get cash back on your purchases.
- Lloyds Banking Groupaccessed on July 20, 2022