Benefits of Green Loans and How To Apply For Them

In a 2019 survey commissioned by the National Climate Change Secretariat (NCCS), it was found that over 90% of Singapore residents are aware of climate change and its impact; and close to 80% are prepared to do more to fight climate change. The campaigns and measures by the government such as raising the carbon tax and the Singapore Green Plan, have brought the issue of climate change to the fore. 

The EV Early Adoption Incentive scheme is an initiative carved out to encourage the  adoption of cleaner energy cars in Singapore. It kicked off in January 2021 and was extended till 2025. Efforts by the government and MCST Management on the expansion of the charging network was also a major draw for consumers. These help consumers to make the switch to EVs — according to LTA data, there are 5,468 EVs registered in 2023, 50.5% higher than the 3,634 in 2022.

The banks also came in to promote sustainability with some incentive — for those looking to make a green choice with “green” personal consumer loans (for car and renovations). This is generally in the area of offering loans with lower interest rates and perks, for EV vehicles (car loans) and the incorporation of sustainable/ eco-awareness choices (renovation loans). 

Related: VC Compares: Hybrid Cars VS Electric Vehicles (EVs)

There is evident heightened awareness and more exposure to environmental issues in recent years. However, as we are faced with overarching problems — such as inflation and macroeconomic issues — most of us still shy away from going green due to pragmatic reasons. While Singaporeans want to create a more sustainable world, they are daunted in reality when it is expensive or not convenient. This is also in line with the Climate Index score (which surveyed over 2,100 Singaporeans from 4 to 16 June 2022 and remains unchanged from 2021) — whose score remained at 6.7 on a scale of 0 to 10.

The combined efforts of education, awareness and incentives have increased the interest and definitely the actions of Singaporeans towards going green. This is evident in the promising results from green loans uptake. Using OCBC Bank as an example, in the two years since launching its Eco-Care Loans, OCBC Bank said that it has extended over S$3.5b (US$2.64b) to consumers. This Eco-Care loan series is made available to the retail customer segment and caters to those who are looking to purchase a home, conduct renovations, or own a car and offers a range of benefits for those meeting certain green goals and criteria. In the loans that OCBC extended from March 2021 to March 2023, green loans account for one in every five home, renovation, and car loans. In a March 2023 case study, OCBC also mentions that it aims to target an almost 10% year-on-year growth in its Eco-Care Loans, after taking into account the inflation as well as expectations of a housing market slowdown in 2023.

A pressing consumer question: if we are to compare personal green loans to normal loans, do you think they offer better rates? What are the factors we need to consider when taking out these loans?  We take a look at green loans versus conventional loans across a variety of loan products.

• Home Loans — Mortgage Loans

• Other Loans — Car Loans, Renovations Loans
• Compare The Best Personal Loans
• Conclusion

Home Loans — Mortgage Loans

For green housing loans, banks like HSBC, Standard Chartered and OCBC offer interest rate discounts and perks such as voucher rebates from electricity providers. Other banks such as UOB and Maybank provide shopping vouchers instead. Let’s look at some comparison examples below.

Under the OCBC Eco-Care Home Loan, by reducing your home’s energy consumption in the long run, a consumer can enjoy these lower interest rates and perks. The below is an example: 

• Promotional SORA pricing package
• Bill rebate on electricity plan

OCBC Eco-Care Home Loan uses the Building and Construction Authority’s Tropical Home Energy Efficiency Assessment (THEEA) as a prerequisite to apply for a home or renovation loan in Singapore. The below is a screenshot of the application process:

UOB Go Green Home Loan is tailored for homes awarded with the BCA Green Mark — the bank’s efforts in encouraging reduction of carbon footprint. The current perks (as of March 2024) for those applying for a UOB Go Green Home Loan: Receive a TANGS gift card + worth up to S$200 and upgrade your home appliances to be more energy efficient.

• TANGS Gift Card worth up to S$200
• S$2,200 cash reward

Other Loans — Car Loans, Renovations Loans

To encourage the adoption of eco-awareness, OCBC Eco-Care Car Loan comes with preferential interest rates and offers free charging credits and free home charging stations for landed property residents who buy certain EVs upon launch.

The below is a comparison of the interest rates (green VS regular OCBC Car Loan):

• OCBC Eco-Care Car Loan: Interest rate of 2.48% per annum (EIR 4.65% per annum based on a loan tenure of 7 years)
• OCBC Eco-Care Car Loan: special package exclusively for Tesla Electric Vehicles (EV) = Interest rate of 1.90% per annum (EIR 3.61% p.a. based on a 7-year loan tenure)

In comparison, the regular Car Loan (OCBC) is at 2.78% (EIR 5.19% p.a. based on a 7-year loan tenure) to 2.98% per annum (EIR 5.54% p.a. based on a 7-year loan tenure) — higher than the Eco-Care Car Loan (aka green car loan).

DBS Eco-aware Renovation Loan aims to raise awareness about eco-friendly choices in the home renovation process — non-toxic paint, energy-efficient appliances, leveraging smart technology to reduce carbon footprint, etc. This is to encourage the customers to incorporate conscious choices into their daily living.

What borrowers have to fulfil at least six out of the 10 items under the “Eco-aware Renovation Checklist” (image as below screenshot) and they can enjoy an attractive interest rate of 4.68% p.a. (EIR 5.41%) on the renovation loan. This interest rate of 4.68% p.a is definitely more attractive than DBS’s conventional renovation loan and also helps as an incentive towards being green.

• 4.88% p.a.* for DBS Renovation Loan

• 4.68% p.a.* for DBS Eco-aware Renovation Loan

*Effective Interest Rate (EIR) – 5.60% and 5.41% respectively based on 60-months loan tenure and inclusive of 1% handling fee and 1% insurance premium

To play its part in sustainability and going green, DBS also offers their DBS Green Car Loan. The below are the interest rates, promotion and the eligibility criteria:

• 2.48% p.a. (EIR 4.65% p.a. based on 7-year tenure)
• Applies to new and used green cars
• A minimum loan of S$10,000 and tenure of 1 year or more.
• Hybrid cars qualify for cash rebates of S$288, while full electric cars qualify for cash rebates of S$588

Comparatively, The regular DBS Car Loan is higher at 2.78% (EIR 5.19% p.a. based on 7-year tenure) and onwards (information accurate as of March 2024).

UOB Go Green Car Loan offers the incentive of three Renewable Energy Certificates (RECs) upon loan disbursement. These RECs help to support the generation of clean energy and reduce your carbon footprint, bringing you one step closer to your green goals.

Compare The Best Personal Loans

Conclusion

An interesting point to note is what constitutes “green” to qualify for the green loans – which comes with preferential rates and/ or perks. 

In terms of car loans, hybrid and electric vehicles are both good options for buyers who are looking for more environmentally friendly cars. There are pros and cons for each of these choices as a car owner. Hybrid vehicles are likely to offer more flexibility as they can be powered by both petrol and batteries. Meanwhile, electric vehicles offer greater rebates when purchasing and lower maintenance costs. In the instance of green car loans, some banks will go strictly by the definition of EVs whereas others (like DBS) will accept both vehicle types.

For renovation and/ or home loans, the measure of “green” might also differ between the financiers. For example, OCBC uses the Building and Construction Authority’s Tropical Home Energy Efficiency Assessment (THEEA) as a prerequisite to apply for its green home or renovation loan in Singapore. DBS green renovation loan’s requirement is the fulfilment of at least six out of the 10 items under its “Eco-aware Renovation Checklist”. 

A loan is a mid to long term financial commitment (at least two to seven years or even longer in the case of mortgage/ home loans). The affordability of monthly instalments and the borrower’s ability to service the loan, is of course the foremost priority for considerations. 

While the promotional rates and perks are wonderful, we shall also consider and integrate into our daily habits that ongoing conscious efforts are needed to create a more sustainable world. For example, besides considering the upfront installation of eco-friendly items in renovations, be it for the feel good factor or to qualify for the preferential green loans, we should also be committed to the ongoing maintenance of these items on top of basic daily conscious efforts to reduce our carbon footprint . Cultivating the habit of switching off the lights, air-conditioning or electric appliances when not in use as well as replacing and repairing the eco-friendly items when wear and tear occurs can have just as great an impact on the environment in the long run. 

Read More:

• Everything To Know About Green Financing & Singapore Sovereign Green Bonds
• Environmental, Social, & Governance (ESG) Investing in Singapore: The What, Why and Hows Behind Sustainable Investing.
• How To Invest in the Electric Vehicle (EV) Industry
• 4 Ways to Live a More Sustainable Lifestyle on Any Budget
• How To Go Green On A Budget — And Save S$500/Month

Cover image source: Unsplash