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Green interest in loans

WHILE spending some time holidaying in Europe over Christmas, it was really driven home to me what a big country Australia is, so its little wonder that we love our cars.

But they can cost us dearly.

A colleague of mine is the proud owner of an ageing ute, which, with its V8 engine, guzzles petrol like a drunken sailor, making even a trip down the street to the corner store expensive.

Fuel efficiency should always be a consideration for anyone buying a car especially in these days of inflated pump prices but in addition to a lower fuel bill, there can be other advantages of buying a fuel-efficient car.

In fact, a new type of car loan has recently become available, providing borrowers with financial, as well as environmental incentives to buy a new, or fuel-friendly, vehicle.

Offered by a growing number of lenders including Western Australias StateWest Credit Society and Members Equity Credit Union, these "green" car loans reward borrowers by charging a lower rate of interest on vehicles that are environmentally friendly.

The newer the car, or the more fuel-efficient the vehicle is, the lower the interest charge.

In addition, some lenders are involved in tree planting programs designed to offset the greenhouse gas emissions produced by those cars purchased with the loan .

To give you an idea of how they work, MECUs GoGreen car loan charges an interest rate of 7.24 per cent per annum on cars that consume up to six litres of fuel for every 100km of city driving.

As the fuel consumption rises, so, too, does the interest rate.

If the loan is used to buy a car that consumes eight litres of fuel under the same conditions, the rate jumps to 8.24 per cent.

With an estimated 800,000 new cars hitting our roads each year, theres no question that attempts by lenders to lower fuel consumption are welcome initiatives.

But as with any financial product, you need to check that the cost of the loan suits your budget as well as your environmental concerns.

Firstly, dont just compare car loans on the basis of the annual interest rate.

Always look for the "comparison" rate, which takes into account ongoing fees and charges.

This lets you make more accurate comparisons between loans.

For instance, the interest rate on the MECU loan rises from 7.24 per cent per annum to 7.26 per cent once fees and charges are taken into account.

Despite these extras, this is certainly one of the less expensive car loans on the market (for this level of fuel consumption).

But by shopping around, it is possible to find even cheaper finance. Encompass Credit Union, for instance, has a car loan ( secured by term deposit) with an interest rate of 7.05 per cent.

A good source of information on the current rates and terms for a variety of car loans is www.infochoice.com.au.

If youre keen to know more about the fuel efficiency of a particular vehicle, the Australian Greenhouse Office has compiled a fuel consumption guide for cars from 1986 to current models covering both city and highway use.

You can find more information at www.greenhouse.gov.au.

l Paul Clitheroe is a founding director of financial planning firm ipac, host of Channel Nines Money reports and chief commentator for Money Magazine.

Source: http://www.bordermail.com.au/newsflow/pageitem?page_id=896107
Mon, Feb 14, 2005

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