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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 financing option for consumers purchasing zero- or low-emission vehicles. They often feature lower interest rates and several other perks.
What are green auto loans?
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 many 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. These loans can make green vehicles more affordable for borrowers.
For instance, Chevrolet offers a 3.49% APR for 60-month loans when purchasing its Bolt EV. Similarly, Ford offers a 3.9% APR on loans of up to 72 months for its Mustang Mach-E.
These rates are far lower than the current average interest rates on new car auto loans, which were between 5.4% and 5.28% in September 2022. But you’ll have to meet credit and other requirements to qualify for such deals.
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 come with benefits like lower carbon dioxide emissions, less maintenance, fewer fuel stops and quieter engines.
A 2021 study from the International Council on Clean Transportation showed that electric vehicles have the lowest life-cycle greenhouse gas emissions of all car types. According to the study, the lifetime emissions of an average medium-sized electric vehicle are 60% to 68% lower than comparable gasoline cars in the United States.
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 to determine whether your car qualifies for a money-saving green auto loan.
Still, green vehicles come with a higher average upfront price tag than traditional car options. So, many states encourage drivers to purchase these vehicles by offering tax credits.
According to Kelley Blue Book, the average price of an electric vehicle in the United States was $65,921 in September 2022. But not all electric vehicles will set you back that much, and some luxury models cost far more. For instance, the starting price for a 2022 Nissan Leaf is $27,400, while the 2022 Tesla Model 3 starts at $48,490. Spending well over $100,000 on an electric vehicle is also possible. The Tesla Dual Motor Model X starts at a steep $120,990.
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 ones, either through lower base interest rates or rate discounts. Because green vehicles can be expensive, many lenders offer longer repayment terms than conventional auto loans to reduce 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 all offer green auto loans.
In addition, some dealerships may offer green loans from the manufacturer. For instance, Ford offers financing for its Mach-E model through local dealerships. Similarly, Chevrolet offers financing for its Bolt models through dealers.
Why are green auto loans important in 2022?
Green auto loans and vehicles started surging in popularity in the early- to mid-2000s, and they’re not slowing down. High gas prices may help fuel the demand, with the price per gallon averaging around $3.77 in late October.
According to Kelley Blue Book, Americans bought 67% more electric cars in the third quarter of 2022 than during the same period in 2021.
Several car companies have committed to helping the federal initiative and driving 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. Try to improve your credit score — 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. Comparing a few rate quotes before applying for a loan can help you get the best deal. Check out these resources for help as you begin the car-buying process:
- PlugStar: PlugStar is a particularly helpful resource 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 vehicle’s environmental footprint.
- 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.
- 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. Ask your local credit union about available options as you shop for an auto loan.
The bottom line
Buying a green vehicle can pay off in a few ways. You may lower your carbon footprint, take advantage of tax breaks and save a bundle on fuel costs.
Before applying for a green auto loan, research at least three lenders and inquire about their eligibility criteria, incentives and discounts. Get preapproved so you can compare fees, interest rates and monthly payments over the life of the loan. Shopping around could land you an auto loan discount that saves you hundreds or thousands of dollars.