Should you take out a 10% interest loan to get a heat pump installed?

Octopus Energy customers can now get a loan to pay for a heat pump to be installed – but the deal isn’t as good as customers can get elsewhere.

Many homeowners would like to make their home more energy efficient, but are put off by the high cost of a heat pump to replace their gas boiler.

These pumps cost between £8,000 and £30,000 to buy and fit, with the large price range reflecting what type you’re buying and what kind of home you have.

Now Octopus Energy has launched a pilot loan project, backed by lender MBNA, to finance the cost of installing a heat pump.

This is Money has dug into the terms of the Octopus Loan to see what it has to offer.

Octopus already offers one of the cheapest heat pumps on the market.

The air source heat pumps start from £3,000, which Octopus says is the cheapest price in the UK.

The energy 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 prize is also conditional on homeowners being accepted for a £5,000 grant available through the government’s Boiler Upgrade Scheme.

Octopus’ main rival with cheap heat pumps is British Gas, which sells the replacement boilers for just £2,999.

Octopus customers can now get a loan from £1,000 to cover the cost of a new heat pump.

Once clients go through the application process with Octopus and receive a quote, they are asked if they are interested in an MBNA loan.

The loan can be repaid over a period of one to seven years.

The interest rate depends on the amount you borrow and the term of the loan.

However, Octopus says the average interest rate – or “annual rate” – will be around 10.7 percent per year.

Someone who gets this interest pays £700.81 in interest on a £3,000 loan if he pays off in four years.

However, only 51 percent of customers are offered a rate equal to or lower than the 10.7 percent average.

The remaining 49 percent can be quoted more because of how lending rules work when calculating interest rates.

Is the Octopus heat pump loan worth it?

Experts say the Octopus loan is quite decent, but consumers may be able to borrow the same amount elsewhere at a lower interest rate.

However, clients can choose to look beyond the interest rate on the Octopus loan.

Octopus also offers to apply for the National Heat Pump Installation Discount on behalf of homeowners, saving them time.

Chris Lilly, of the personal finance comparison site, finder.com, says, “You can, of course, apply for the government grant yourself and separately apply for a personal loan from your bank or other lender.

You could probably find a slightly cheaper deal by looking at the entire loan market, depending on the amount you need and the term over which you want to repay.

“On a loan of £3,000 over four years, the example Octopus uses, you could save a total of £50 by borrowing through M&S Bank, for example.”

The interest on this loan is 9.9 percent, so slightly lower than that of MBNA.

An Octopus spokesperson said: ‘Customers choose us for heat pumps because we have a trusted brand and a well-known track record of customer service, making buying a heat pump from us faster and easier.

‘We also have a lot of expertise and numerous products that make the switch to a heat pump through us simpler and cheaper.’

Homeowners are turning to loans to finance green home improvements

A new Barclays survey of 3,000 homeowners found that homeowners feel encouraged to make green home improvements, they are made more affordable.

Scottish Power offers a financing plan for households wishing to install solar panels.

Now Barclays also has a Greener Home Reward program that offers a cash reward of up to £2,000.

When it comes to paying for green home improvements, trade organization the Energy and Utilities Alliance has advised consumers to “stick something on the card” when you buy a heat pump.

In other words, making purchases with a credit card offers consumers protection if something goes wrong.

That’s because of Section 75 of the Consumer Credit Act, which states that if a consumer buys something on credit worth between £100 and £30,000, the lender and seller are equally liable to fix the problem if something goes wrong.