In early August 2021, President Biden signed an executive order stating that half of all new vehicles sold in the U.S. should be electric by 2030 — so now might be the perfect time to get behind the wheel of a green vehicle. If you are purchasing an electric car, you may be able to save money by pursuing a green auto loan.
A green auto loan is a unique financing option. It caters to consumers looking to purchase zero-emission vehicles, and often features lower interest rates and several other perks.
What green auto loans are
A green car loan can be used to purchase eco-friendly cars — or cars with lower average emissions. These fuel-efficient cars typically fall under the category of hybrid or electric and are available from a variety of manufacturers, from Ford to Nissan to Tesla.
Green auto loans incentivize shoppers to consider these environmentally friendly vehicles by offering interest rate discounts, extended repayment terms and other benefits. By doing so, these loans make green vehicles more affordable for borrowers.
What qualifies as a green car?
A green car is a vehicle that uses alternative fuel or electricity instead of gasoline or diesel, making them better for the environment. They also come with an assortment of benefits, including lower carbon dioxide emissions, less maintenance, fewer fuel stops and quieter engines.
The best green vehicles have a SmartWay designation, a score awarded by the U.S. Environmental Protection Agency to the vehicles with the lowest emissions for each model year. Many lenders use this designation as a measurement to determine whether your car qualifies for a green auto loan for lower rates.
Still, green vehicles come with a higher upfront price tag than traditional car options. So, many states encourage drivers to purchase these vehicles by offering tax credits.
How do green loans differ from conventional auto loans?
A green auto loan functions like a traditional car loan: You’ll apply for the loan through an auto lender, receive an interest rate based on your credit score, select a repayment term and make regular payments with interest over the loan term. However, the details of the two loans may be slightly different.
Green auto loans typically offer lower interest rates than conventional auto loans, which could come in the form of lower base interest rates or rate discounts. Because green vehicles can be expensive, many lenders also offer longer repayment terms than with conventional auto loans to bring down the monthly payment.
A main defining factor of green auto loans is where they’re available. Unlike typical auto loans, which you can get from banks and online lenders, you’re more likely to find a green auto loan through a local credit union. The University of Hawaii Federal Credit Union, the Vermont State Employees Credit Union and Verity Credit Union are all examples of credit unions that offer green auto loans.
Why are green auto loans important in 2022?
Green vehicles and green auto loans began to surge in popularity in the early- to mid-2000s, and they are becoming even more commonplace. Surging gas prices are also fueling the demand, with the price per gallon averaging around $4.33 at the end of July, according to AAA.
According to Argonne National Laboratory, Americans purchased a record-high number of hybrid and plug-in vehicles in June 2022. While hybrid purchases were down 0.65 percent from May 2021, plug-in purchases were up 18.6 percent from June 2021.
Car companies are also promising to help the federal initiative to drive more green vehicle purchases. Ford, General Motors and Stellantis (which owns Chrysler and Fiat) have pledged to increase electric vehicle production.
Next steps and where to apply for a green auto loan
Before applying for a green auto loan, ensure your finances are in the best shape possible. It is always wise to work to improve your credit score, since lenders use your credit score, income and more to determine whether you qualify for a loan and what rates they can offer you.
From there, you can shop around for your green auto loan. Ideally, you want to get a few rate quotes before applying for a loan to get the best deal. There are several resources that can help as you begin the car-buying process:
- PlugStar: PlugStar is a resource that’s particularly helpful for car shoppers early in the process. After entering your ZIP code and desired make and model, you’ll see cost estimates, available incentives, information on local dealerships and the environmental footprint of the vehicle.
- EV Life: EV Life’s EV Climate Loan allows you to get prequalified with multiple lenders and automatically qualifies you for rebates and incentives, applying those savings upfront to your monthly payment.
- Bank of America: Bank of America offers financing for electric vehicles. You can apply online, get a decision in just 60 seconds and lock in your rate for up to 30 days.
- Credit unions: Local credit unions are one of the best places to start your search for a green auto loan. Credit unions like JetStream Federal Credit Union, Suncoast Credit Union and MyPoint Credit Union offer interest rates discounts on auto loans for green vehicles. As you shop around for an auto loan, ask your local credit union about available options.
The bottom line
A new vehicle is a big financial and emotional choice but buying a green vehicle can pay off in a few ways. You can lower your carbon footprint, tax advantage of tax breaks and save a bundle on fuel costs.
But before applying for a green auto loan, research at least three lenders and inquire about their eligibility criteria and incentives or discounts they offer. Also, consider getting pre-qualified to get an idea of costs you can expect over the life of the loan. By shopping around, you could get an auto loan discount that saves you hundreds or thousands of dollars.