Is Interest Free Solar too good to be true?
Why wouldn’t everyone be jumping at the chance? Get the solar power loan you need for installing solar and pay it off without the added cost of interest. Well, it turns out that interest free solar loans are often too good to be true. In this blog, we will debunk the myths about interest free solar loans from the likes of Certegy and Brighte and explain why we choose to stay away from these types of loans. We’ll also discuss the reasons we use lenders like Green Loans and Classic Finance, and show how you could easily save over $1000 compared to a so-called “interest free solar” loan.
Interest free lenders are everywhere!
Just when you think you’ve got on top of your expenses – BAM! – the fridge dies, or you need a new washing machine. Rather than using your credit card and paying some whopping interest rates, or taking out a personal loan, you decide to try out the interest free option you’ve been seeing all over the place.
You’ve probably heard of Certegy, who offer easily-approved finance for everything from jewellery, to electronics, to exercise equipment. Being able to walk into your store of choice, hand over a few details and walk out with a new purchase seems like a dream come true for a lot of consumers. But what’s the catch? How are these companies really making their money, if they’re not charging you any interest?
The reality with interest free lenders is that they make their money from fees and charges payable by you, the customer, as well as by charging the retailer a percentage of the sale which (surprise, surprise) are just added to the cost of the product. This is roughly how it works with purchasing Solar with Certegy.
Interest Free Solar charges to the Solar Sales company
Ok, fair enough. If I want to offer the services of Certegy “interest free solar” loans in my business, I would expect to pay for that service. How much? It’s confusing, and it depends on the loan amount, the term of the loan, and the amount of the deposit. But as a rule of thumb, it is about …. 23 freeking percent of their sell price for the solar system! So a system that would have been sold for $7000 would have $1610 of charges to the company that sells it. Deceitfully, Certegy insists that the retailer cannot add the charges on to the cost of the system. But don’t be fooled. Any solar company that has to pay that does not just “absorb it”. It gets factored into the cost of your system. So you would pay the retailer the inflated price of $8610 for a $7000 system.
That’s why they use the euphemism “a discount for cash”.
Interest free solar price: $8610
Cash price: $7000
As the Good Guys sing so joyfully: ‘pay cash, and we’ll slash the prices.”
The reality: you are getting slugged 23 percent for “no interest ever”.
But wait, there’s more..
“Interest Free Solar” charges directly to the customer
On top of the charges the Solar retailer passes on to the customer, the end customer also pays:
- $3.50 monthly Revolving Credit Account fees (even after you have paid off the loan – until you close the account)
- $2.95 Fortnightly Payment processing fees
- $35 to $90 customer establishment fee (depending on the deal the retailer gets)
- $15 Late payment fees
- $15 Change of details fees (for changing any of the details around your arrangement, such as payment dates etc.)
- $30 Collection fees (on top of a late payment fee!)
- $22 Repeat purchase fees. (Consider it a customer loyalty fee).
- Up to 40 months
Over three years, you have a minimum of $446 of fees to add on top the $1610 that the sales company will add on to your system.
A loan through Certegy of $7000 over 3 years will cost a total of $9056.
Plus late fees, change of details, collection fees, repeat purchase fees, and revolving credit account fees because you forgot to cancel it.
(But don’t worry, there is no interest ever!)
How do they get away with it?
Australia has legislation in place to protect consumers who borrow money. It’s called the “National Consumer Credit Protection Act.” However, because of the interest free loophole, Certegy and Bright are not regulated by the NCCP Act. The Clean Energy Council explains that as a result:
- If you have a complaint about your agreement, you may not have access to the services of an external dispute resolution scheme that has been approved by ASIC. This means that you may have to go to court to resolve a dispute with the provider.
- If you have trouble making the periodic payments, you may not have the right to ask the provider for a hardship variation to help you get through your financial difficulty.
- If you have trouble making payments, your provider may take action against you for non-payment without giving you a chance to remedy the fault.
Our chosen lenders
At MC Electrical, we choose ethical lenders only. Making sure that solar customers can not only get the system that’s right for them, but get it at the best price, and with a finance solution that’s leaving them better (and not worse) off should be a number one priority for all solar retailers and installers. Furthermore, it’s crucial for ensuring the long-term viability of the industry. So, which lenders do we choose and why? Here, we’ll give you the experiences we’ve had with our chosen lenders and help you to understand why they’re our top picks.
Community First – Green Loans
“Green Loans” is a loan offered by Community First Credit Union designed for financing residential solar systems. It will often be our first port of call for financing our client’s solar systems, and this comes down to a few key factors.
- Interest rate 6.12
- No monthly account keeping fees
- Making extra repayments without penalty and redraw your money as you need it.
- Pay your loan out early without penalty
- Borrow from $1,000 to $35,000, with loan terms from 1 to 10 years
- Unsecured loan
- $199 – One-off application fee of
- $25 – late payment fee
- $15 redraw on extra repayments.
Community First explains that the reason they can make their Green Loan so competitive is because it’s great marketing for them. They’ll get your foot in their door, with the hope that further down the track, you’ll get a credit card or car loan off them. You might even end up doing all your banking with them.
Green Loans charges no ongoing account keeping fees and doesn’t penalise customers for paying out their loan earlier. And finally, they charge a once-off application fee. This means that customers are not getting caught out by loads of undisclosed fees which end up costing them more in the long run. Green Loans is unique in that, once approved, the customer’s funds are transferred into an account for them, and they (the customer) are in total control of paying the deposit and final amount to the retailer/installer.
Green loans in summary
A loan through Green Loans of $7000 over 3 years would cost a total of $7860
(That’s $1196 cheaper than “interest free” Certegy) plus the you have the protection of The National Consumer Credit Protection Act.
It’s worth noting that if a customer is self-employed or hasn’t been at their job for more than a few months, the application process can require a lot of extra detail, and is often rejected. That’s why we have another option for those customers who may not find a Green Loans loan suitable.
Classic Funding is a unique option for customers, as the approvals process is based on the savings that are likely to be made from installing solar. For example, if the customers electricity bill is expected to be reduced by up to $100 a month, this $100 would be taken into account as savings which can service the loan. This option can make it easier for self-employed clients or those who’ve recently started new jobs, to finance their solar installation. While Classic Finance loans incur an ongoing monthly account fee (as most loans do), they also only charge a once-off application fee and organise payment to the retailer for the customer. This means that the customer doesn’t need to do a thing once their finance is approved, it’s all sorted out between the retailer and the lender.
- Interest rate 9.95
- $5.50 monthly administration fee
- Unsecured loan
- Loan terms from 2 to 7 years
- One-off application fee of $199
A loan through Classic Funding of $7000 over 3 years will cost a total of $8760 (see the Classic funding calculator)
That’s $296 cheaper than “no interest ever” Certegy – plus the protection of The National Consumer Credit Protection Act.
Interest Free Solar Loans are not all they are cracked up to be. We’ve compared three lenders and used the example of a $7000 solar system paid off over three years. In this example, Certegy works out to be $1196 more expensive than a Green Loan through Community First Credit Union. If you are self-employed, CFCU may not apporve you, that’s why we also use “Classic Funding”. In the above Classic funding would be $296 more affordable than Certegy. So Certegy’s “interest free” loan was more expensive than both lenders that are honest and upfront about their charges. You should note that if you use Certegy, you are not protected under the National Consumer Protection Act. That’s why I cringe every time I hear the words “interest free solar”.
This blog should not be considered financial advice. I’m just a sparkie. Contact the lenders to get accurate and up to date figures.