What are green auto loans?
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’re purchasing an electric car, you may be able to save money by pursuing a green auto loan.
A green auto loan is a type of car loan designed for zero-emission vehicles, often featuring lower interest rates or other perks. Here’s what to know about this unique financing option.
What green auto loans are
A green car loan is a vehicle finance option that is available for 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.
How do green loans differ from conventional auto loans?
A green auto loan is functionally similar to a traditional car loan: You’ll apply for the loan through a lender, receive an interest rate based on your credit score, select a repayment term and make regular payments with interest throughout the life of the loan. 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 you will apply for them. Unlike typical auto loans, which you can get from banks and online lenders, it is more likely that you will 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.
What qualifies as a green car?
A green car is a vehicle that is better for the environment than vehicles that run on gasoline or diesel. Typically, green cars use alternative fuel or electricity.
The best green vehicles have a SmartWay designation, a score awarded by the U.S. Environmental Protection Agency to the lowest-emitting vehicles 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.
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’re becoming even more commonplace. Surging gas prices are also fueling the demand, with the price per gallon in March averaging around $4.25.
According to Argonne National Laboratory, Americans purchased a record-high number of both hybrid and plug-in vehicles in February 2022, with hybrid purchases up 10.2 percent from February 2021 and plug-in purchases up 11.7 percent.
The Biden administration is also committed to making green vehicles more accessible. In early August 2021, Biden signed an executive order calling for half of new auto sales to be zero-emission by the year 2030. Car companies are promising to help; Ford, General Motors and Stellantis (which owns Chrysler and Fiat) have pledged to increase electric vehicle production to help reach the 2030 goal.
There are plenty of benefits to green vehicles, including lower carbon dioxide emissions, less maintenance, fewer fuel stops and quieter engines. Green vehicles do still come with a higher upfront price tag than traditional car options, but many states encourage drivers to purchase these vehicles by offering tax credits, and driving an eco-friendly vehicle will help you save more money over time on general running costs. Plus, an increased demand for vehicles will eventually bring down the price for future buyers.
Next steps and where to apply for a green auto loan
When applying for a green auto loan, first ensure that 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. It’s typically best to get a few quotes before signing up, as every lender offers different rates. There are several resources that can help as you begin the car-buying process:
- PlugStar: PlugStar is a great 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 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. As you select a new green car, ask any potential auto loan lenders about their incentives or discounts; getting a green auto loan discount could save you hundreds or thousands of dollars over your loan term.