This could take some of the sting out of these high prices.
- Some lenders offer green auto loans for those with qualifying hybrid or electric vehicles.
- These loans offer lower interest rates, more generous repayment terms, or both.
- But they can be hard to find.
Electric and hybrid vehicles promise lower maintenance and fuel costs, as well as lower emissions, but that price isn’t always easy to swallow. The average electric vehicle cost $10,000 more than the average gas-powered vehicle in 2021, according to the Natural Resources Defense Council. That could change as electric vehicles become more widespread, but for now, expect a high upfront cost when buying one of these cars.
This might put them out of reach for some, but there is a little-known financing option that could make all the difference. Here’s what you need to know.
Green car loans offer special conditions to buyers of environmentally friendly vehicles
Green auto loans are similar to traditional auto loans in many ways, but they are only available to those purchasing a qualifying hybrid or electric vehicle. Eligible beneficiaries can benefit from lower interest rates, extended payback periods, or both to reduce the monthly cost of financing an electric vehicle.
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These loans are becoming increasingly popular, although they are far from being a common offering. Some banks have them, but you’re more likely to find them at credit unions.
Each lender has its own rules dictating which vehicles qualify and what types of installments and repayment terms are available. Some require the vehicle to have SmartWay certification from the Environmental Protection Agency. This certificate is awarded to the vehicle makes and models that offer the lowest emissions in their model year.
Many green auto loans charge interest rates at least 1% lower than lenders charge for traditional auto loans, and some offer repayment terms of up to 84 months. Spreading your payments over this period allows you to increase interest payments over the course of the loan, but also significantly reduce your monthly payments.
How to find a green car loan
Before you buy any credit, it’s important to do everything you can to improve your credit score. All lenders use this information when calculating your interest rate because it gives them an idea of how likely it is that you will default on your loan. A lower credit rating indicates higher risk, and lenders charge these borrowers a higher interest rate.
The next step is to find lenders that offer green car loans. Start by looking at local credit unions and banks. You can also find some online lenders that also offer green car loans. Check out each of them and check their eligibility criteria, their average prices, and the quality of their customer service.
Select a handful to receive offers. You need to know the make and model of vehicle you want to buy and the purchase price in order to do so. If you don’t yet know exactly how much you will pay for the car, you can make an estimate.
Try your best to complete all your applications within about a month. Credit bureaus usually count multiple inquiries made within a short period of time as a single inquiry to reflect normal comparison shopping behavior. But if you wait longer, you’ll get more inquiries, which can hurt your credit score.
Once you find a lender that you are happy with, you can complete the paperwork and get the money you need to purchase your vehicle. You make monthly payments like a traditional car loan until you pay off the balance.
And if you can’t find green auto loans that suit you, don’t be afraid to check out some traditional auto loans as well. Some offer EV discounts, which could help you qualify for an affordable rate, especially if you bundle insurance. By exploring all of your options, you increase your chances of scoring big.
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