Green auto loans: What are they and what you need to know
Quick insights
- Green auto loans often offer incentives like reduced interest rates to make buying an eco-friendly vehicle more affordable.
- Conventional auto loans are more common, but green auto loans are available through some lenders and credit unions.
- To apply for a green auto loan, your car must be considered “green” and qualify as an environmentally-friendly vehicle.
Thinking about buying an environmentally-friendly car such as an electric vehicle (EV) or hybrid? While these vehicles can typically be more expensive than gas-powered cars, applying for a green auto loan may help you save on interest costs and come with other incentives. Let’s learn how you can go green while saving money below.
Understanding green auto loans
Green auto loans, also known as green car financing, are designed for the purchase of green vehicles like EVs. Because these types of cars are generally more expensive than traditional gas-powered vehicles, some lenders may incentivize customers with a green auto loan, which could come with lower interest rates and other benefits.
Green auto loans vs. conventional auto loans
You can only apply for a green auto loan if you are purchasing a green car, while conventional auto loans can be used to finance just about any type of car. Additionally, green auto loans may come with lower interest rates, discounts and extended payment terms to help offset the extra expense of purchasing a green vehicle. Note that green auto loans are not as common as conventional auto loans—you may have to apply through a specialty lender or credit union, as opposed to conventional auto loans which may be more widely accessible.
Conventional auto loans typically don’t offer as many benefits and incentives, but your terms may vary depending on your credit score and other factors, such as the size of your down payment.
What qualifies as a green car?
A green car is essentially a car with lower emissions, high fuel efficiency and uses an alternative method to gasoline. These vehicles range from EVs to hybrids to alternative-fuel cars (such as those that run on biodiesel).
Some cars may come with certifications, such as a SmartWay certification, a designation made by the US Environmental Protection Agency (EPA). These certifications can help identify how environmentally-friendly a car is. The models that qualify for these certifications are updated each year by the EPA.
If you’re ever unsure if your car qualifies as a green vehicle, it can be helpful to check with your lender and their requirements to confirm prior to applying for a green auto loan.
How to apply for a green auto loan
Found your dream green car? Let’s go over some steps for applying for a green auto loan below:
- Do some research. Green auto loans are not as commonly available as conventional auto loans, so you may have to shop around for lenders who offer this type of loan. Credit unions are another option you may want to consider if you can’t find a green auto loan from a traditional bank. Note: You may not always get better terms with a green auto loan, so it can be helpful to shop around and compare these loans.
- Check the requirements and read the terms and conditions. Before applying, make sure your car qualifies for this type of loan and that you meet other potential requirements such as a high enough credit score. This can help make for a smoother application process if you know what you may be able to qualify for ahead of time.
- Gather necessary documents and apply. You may need to provide documentation such as proof of your identification, proof of income and more. When you apply, note that your lender will run a hard credit check, which may temporarily impact your score. Depending on your lender, you may apply online or in person.
Additional considerations for green auto loans
Green auto loans can be a helpful option if you’re looking to help save on some costs and offset the potentially high price of a green car. However, there are some important things you may want to consider:
- Potential higher overall cost of the car
- If you’re purchasing a fully electric vehicle, there may be more limited availability for charging stations
- Potentially higher credit score requirements to qualify for a green auto loan
- Adjusting to a shift in technology and driving experience—if you haven’t driven a green car, there may be a learning curve
In conclusion
As technology continues to advance and adapt, so do the financial implications of acquiring new vehicles like EVs. A green auto loan may help you save money and potentially provide additional financial support or benefits that you wouldn’t otherwise receive with a conventional auto loan. However, it’s helpful to review the eligibility requirements of a green auto loan and the potential implications of owning a green car prior to applying.
