What Are Green Auto Loans?

Green auto loans are special incentives available to car buyers looking to save on an alternative-fuel vehicle.

Elliot Rieth | 

Sep 9, 2024 | 3 min read

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If you're considering buying an electric vehicle (EV), the switch from a gas-powered car can come with a learning curve and a steep price tag. In March 2024, Cox Automotive reported an average cost difference of nearly $10,000 between EVs and internal-combustion engines (ICEs). To bridge this gap, some lenders are offering green auto loans to make purchasing eco-friendly vehicles more beneficial and affordable.

Whether the vehicle you're interested in is electric or another clean-fuel option, a green auto loan could help support your decision. These loans can help you save on interest rates and lower your monthly payments, making your transition to a green vehicle a more financially viable option.

Benefits of Green Auto Loans

A green auto loan may offer you lower interest rates, with some lenders providing at least a 1% discount for qualifying vehicles. If you're considering a more expensive model, these reduced electric vehicle loan rates may lead to savings over time.

Green auto loans may also include extended payment terms. While many conventional auto loans have term lengths between 48 and 72 months, some green auto loans may extend up to 84 months to help you lower your monthly payment. Keep in mind that longer loans may help you save on your monthly payments but will cost you more in interest over the lifetime of your loan.

To contend with the high cost of electric and alternative-fuel vehicles, some green auto lenders provide financing opportunities for these higher-priced vehicles.

While these are some common benefits, your lender may also offer other perks that will vary based on their lending policies, such as:

• Additional discounts from the dealer
• Hybrid, EV, or alternative-fuel auto loan pre-approval
• Additional add-on products or other fees financed
• Fixed APRs based on your credit score

Vehicles That Qualify for Green Auto Loans

Each lender may have their own set criteria for what does and does not qualify for a green auto loan. However, green vehicles are typically classified as electric, hybrid, or alternative-fuel cars that run on energy like hydrogen fuel cells, compressed natural gas, ethanol, and biodiesel.

Lenders that offer green auto loans may also use the EPA's SmartWay vehicle guidelines to determine which makes, models, and years qualify for special financing. SmartWay guidelines are created each year as the EPA ranks vehicles based on their greenhouse gas and smog-forming emissions on a scale from one to 10. Vehicles with a combined score that falls into the top 20% of all the options currently available are given a SmartWay certification.

Before searching for green auto loans, you can check the SmartWay database to see if the vehicle you want is considered green by the Environmental Protection Agency.

Where to Find a Green Auto Loan

If you're interested in applying for a green auto loan, you may have to look beyond traditional lending options. Green auto loans are typically offered by small credit unions or lending companies that specialize in funding green vehicles.

While they may not come with all the same benefits as a green auto loan, special financing deals from the manufacturer could also help you better afford a green vehicle.

Elliot Rieth

Elliot Rieth is a writer who was born and raised in Michigan, the center of the American automotive industry. With a background in the industry that spans from sales to digital marketing, Elliot has years of experience working directly with dealers and OEMs to create digital content and educate potential customers. When Elliot isn’t writing about horsepower or EVs, he can be found with his two greyhounds enjoying a new book or record.