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Solar Hot Water Heater with no Upfront Payment
No upfront cost always means financing in some way. That is true for an interest-free deal, for a bank loan or using a credit card.
However, as a solar hot water heater reduces your energy bills, the sun can effectively pay for the system and the interest. The average household in Australia spends $300 to $700 per year on hot water. Most solar hot water heaters cost between $1,800 and $2,500 (after all possible rebates).
Option 1: Pay Solar Hot Water Heater Outright
This is always the cheapest option.
As you can see in the graph, you start out in the negative. Then there is a steady improvement of your cash position until you are far better off than without a solar hot water heater.
The sharp rise represents the $1,600 federal rebate.
If you currently have a line of credit or a loan with a good interest rate, you might want to look into a redraw. Check for the best interest and cheapest fees.
Option 2: Finance with a Credit Card or Loan
Financing with a credit card or loan, you may be able to better manage your cash flow.
Apart from the first two months (before you receive the federal rebate), you actually have more cash than without financing the system. The overall return is lower than paying outright. But it is still substantial.
The Choice
If you can, pay upfront. It will always be the cheaper option. However if you do not have the cash to cover the initial cost, Option 2 might be beneficial. When money becomes available (e.g. from tax rebates) it is good to use it to repay the loan to minimise your costs and increase year benefits.
Assumptions
Please note that this is not financial advice. Speak to your financial adviser if you are unsure which approach is appropriate for your situation. For the graphs, we have assumed:
- purchase price of $3,000 (before getting the $1,600 federal rebate)
- minimum repayments of 2.5% of loan or $40, whatever is higher
- fees of $49 per year and interest rate of 12.8%
- not using the $1,600 federal rebate for repayments
- electricity savings of $40 per month (or $480 per year)
Financing the system in this way would cost approximately $1,770. By using the $1,600 federal rebate for repayments when it comes in, costs can be reduced to $880. To further reduce the total costs, just repay more than the minimum monthly repayments. If you can afford slightly higher payments, the Bendigo Bank Green Loan might also be useful for you.
July 23rd, 2008 at 9:37 am
[...] Solar Hot Water Heater with no Upfront Payment [...]
August 23rd, 2008 at 9:16 am
[...] However, we do suggest to pay it off as quickly as possible, so that interest payments are minimised. (See the comparison on full payment vs no upfront cost.) [...]