Octopus Energy customers can now get a loan to pay for a heat pump installation, but the deal isn’t as good as customers can get elsewhere.
Many homeowners are interested in making their properties more energy efficient, but are put off by the high cost of getting a heat pump to replace their gas boiler.
These pumps cost between £8,000 and £30,000 to buy and fit, and the wide price range reflects what type you buy and what kind of home you have.
Now Octopus Energy has launched a pilot loan, backed by lender MBNA, to finance the cost of installing a heat pump.
This is Money has delved into the terms of the Octopus loan to see what it offers.
Heating: Competition to install heat pumps is intensifying, with the launch of a new Octopus loan
Octopus already offers one of the cheapest heat pumps on the market.
Their air source heat pumps start from £3,000, which Octopus claims is the cheapest price in the UK.
The power company is making the bold claim despite raising the minimum cost of its heat pumps by £500, from £2,500 to £3,000, in just five months.
That £3,000 price is also contingent on owners being accepted for a £5,000 grant available through the government’s Boiler Retrofit Scheme.
Octopus’ main rival for cut-price heat pumps is British Gas, which sells boiler replacements for as little as £2,999.
Octopus customers can now take out a loan of £1,000 or more to cover the cost of getting a new heat pump.
Once clients have gone through the application process with Octopus and obtained a quote, they will be asked if they are interested in an MBNA loan.
The loan can be repaid in a period of between one and seven years.
The interest rate will vary depending on the amount you borrow and the length of the loan.
However, Octopus says the average interest rate, or “annual percentage rate,” will be around 10.7 percent per year.
Someone getting this interest rate will pay £700.81 in interest on a £3,000 loan if they pay it off in four years.
However, only 51 percent of customers will be offered a rate equal to or lower than the average of 10.7 percent.
The remaining 49 percent may be priced higher, due to how lending rules work when calculating interest rates.
Is the Octopus heat pump loan worth it?
Experts say the Octopus loan is pretty decent, but consumers can borrow the same amount for a lower interest rate elsewhere.
However, customers may choose to look beyond the Octopus loan interest rate.
This is because Octopus also offers to apply for the government heat pump installation rebate on behalf of homeowners, saving them time.
Chris Lilly of personal finance comparison site finder.com says: ‘Of course, you could apply for the government grant yourself and apply separately for a personal loan from your bank or another lender.
‘You can probably find a slightly cheaper deal by looking around the loan market based on how much you need and how long you want to repay.
“With a loan of £3,000 over four years, which is the example Octopus uses, you could save £50 overall by borrowing through M&S Bank, for example.”
The interest rate on this loan is 9.9 percent, slightly lower than what MBNA offers.
An Octopus spokesperson said: ‘Customers choose us for heat pumps because we have a trusted brand name and a known track record of customer service that makes buying a heat pump from us faster and easier.
“We also have a lot of experience and numerous products, which makes switching to a heat pump through us simpler and more cost-effective.”
Homeowners turn to loans to finance green improvements to their homes
A new Barclays survey of 3,000 homeowners found that homeowners are encouraged to make green improvements to their homes that make them more affordable.
Scottish Power offers a financing scheme for households wishing to install solar panels.
Now Barclays also has a Greener Home Rewards program that offers a cash reward of up to £2,000.
When it comes to paying for green home improvements, trade body Energy and Utilities Alliance has advised consumers to “put something on the card” if they’re buying a heat pump.
In other words, making purchases with a credit card offers consumers protection if something goes wrong.
This is because of Section 75 of the Consumer Credit Act, which says that if a consumer buys between £100 and £30,000 worth of something on credit, the lender and the seller are equally responsible for fixing the problem if anything goes wrong.
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