6 Green Loans to Finance Your Remodel

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Green loans from online lenders

Some online lenders refer to loans you use toward energy- and water-saving home improvements as "green loans." These are unsecured personal loans you use to pay for large-scale projects that might include:

• Solar panel installation.

• Weatherization.

• Bath or kitchen remodels that incorporate sustainable materials.

• Double- or triple-pane window installation.

• Water-efficient plumbing.

• Low-VOC floors, coverings with low volatile organic compounds.

Aside from how you use it, a green loan from an online lender resembles any personal loan: Annual percentage rates start around 6% up to 36%; loan amounts range from $1,000 to $100,000; and repayments are fixed monthly installments, typically over two to seven years.

To qualify for the lowest rates, borrowers generally need good to excellent credit (scores above 690), low debt and enough income to cover existing expenses plus the new loan payment.

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 six steps.

1. Check your credit reports. Review your credit report to spot errors that could be keeping your credit score down. If you address them before you submit a loan application, you’ll improve your chance of qualifying. You can see your credit report for free at annualcreditreport.com.

2. Estimate the project costs. Have a reliable estimate before you start looking into financing options. Personal loans come in lump sums, so if you don’t borrow enough, it’s difficult to reapply for more.

3. Calculate 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.

4. Compare lenders. A good rule of thumb is to choose the lender that offers the lowest APR. You can also compare things like how fast lenders can fund a loan, whether they allow joint or co-signed loans and what kinds of credit-building tools they offer borrowers.

5. Pre-qualify. Many online lenders let you pre-qualify to see what rate, term and loan amount you could be offered without affecting your credit. You can pre-qualify with multiple online lenders on NerdWallet and compare offers from different lenders at the same time.

6. Gather documents and apply. If you go with an offer you’ve pre-qualified for, you’ll move to the application process. A lender may ask for information like W-2s, pay stubs and your Social Security number, so have those documents on hand before you apply. Submitting an application will trigger a hard credit pull.

» MORE: Pre-qualify for a home improvement loan on NerdWallet

Other green loan options

Some credit unions partner with local governments or utilities to offer low rates on green loans. Consider these alternatives to green personal loans.

Credit union loans

You may receive a discounted interest rate on a green loan from your local credit union. Colorado-based Elevations Credit Union, for example, offers an energy loan that finances updates like solar panels and energy-efficient appliances. Velocity Credit Union in Austin, Texas, has financing for energy-efficient home improvements through a partnership with the local utility company. Both loans have low starting rates.

Government funding

Federal, state and local governments may offer assistance to make your home more energy- or water-efficient. The Department of Housing and Urban Development offers FHA Title 1 Loans and 203(k) loans. Some cities provide low- or no-cost energy audits for your home and assistance with weatherization financing. You can find more information about local options at your utility company or by using the Department of Energy’s weatherization database.

Home equity

If you have enough equity in your home, you may be able to borrow it to pay for a green home improvement project. Home equity loans come in lump sums and are repaid in fixed installments, typically over five to 15 years.

With a home equity line of credit, you use as much of the money as needed and repay only what you use. HELOCs have variable rates and repayments over a longer term — often 20 years. Using equity typically means securing the loan with your home, which the lender can take if you don’t repay.

Credit cards

Credit cards are best used for small, DIY projects. Contractors may charge a small fee — 2% or 3% of the cost — if you pay with a credit card. If you have a store card from a retailer you plan to use for the remodel, you may get cash back on your purchases. Just pay off the balance to avoid having interest costs outweigh the rewards.