back to articles | March 29, 2023 | Staci Bailey

Categories: Auto Loans & Financing Vehicle & Buying Research

Have You Heard of Green Auto Loans? Here's What You Need to Know

A green auto loan is only available to those who are buying a qualifying environmentally friendly vehicle. Banks, credit unions, and online lenders them as an incentive to shoppers who are thinking of purchasing green vehicles.


The last few years have not been kind to the finances of motorists. Volatile gas prices have made it aggravating and costly to keep gasoline powered vehicles on the road. Car prices have risen dramatically as well making it difficult for some buyers to find a vehicle which fits their budget.

Rising gas prices and environmental concerns have pushed more drivers towards green vehicles. These cars can reduce or eliminate the dependency on gasoline by being more efficient and relying on alternative fuel sources. Electric cars, hybrids, and power cell vehicles can all utilize alternative energy making them a viable way to avoid the gas station.

Green vehicles have been growing in popularity for the last 20 years and there is no sign of this trend slowing down. In America electric car purchases increased by 67% during the third quarter of 2022 when compared to the same time period in the previous year. Further growth is expected in future years.

While environmentally friendly and fuel efficient, green vehicles tend to come with a higher upfront cost than their gas guzzling counterparts. According to Kelley Blue Book prices you can expect to pay about $10,000 more on an average transaction. With surging vehicle prices that makes green vehicles even more unaffordable for many.

The federal government is attempting to make green vehicles more attainable with incentives such as the EV tax credit. Taxpayers can claim up to $7,500 for qualifying new vehicles and up to $4,000 for used cars. Lenders are jumping on board by offering green auto loans to help motorists finance their next car.

What Are Green Auto Loans?

A green auto loan is similar to a traditional auto loan. A lender gives you the funds to purchase your next vehicle right away. Then you make payments on the loan until you have paid back what you took plus the cost of borrowing.

One difference is that a green auto loan is only available to those who are buying a qualifying environmentally friendly vehicle. Banks, credit unions, and online lenders offer them as an incentive to shoppers who are thinking of purchasing green vehicles. They aim to make eco-friendly vehicles more affordable for a larger number of people.

Green auto loans offer some perks which are unavailable for gas powered cars. They are also tailored for the unique challenges of financing a green vehicle. They can do this in a number of ways.

Lower Interest Rates

Green auto loans make environmentally friendly vehicles more affordable by offering lower interest rates than they do on their conventional car loans. They may offer a lower base interest rate or better rate discounts. This means a lower cost of borrowing and less to pay back.

Extended Payment Terms

Since green vehicles tend to be more expensive, the principal amount on the loan is higher. This is the amount of money you originally set out to borrow. To help drivers make their bigger loan more manageable, green auto loans often come with extended payment terms.

Conventional car loans usually come with a term between 60 and 72 months. Green auto loans can offer a term of up to 84 months. This gives borrowers more time to pay back what they borrowed.

Reduced Monthly Payments

Extended payment terms and lower interest rates means lower monthly payments for borrowers. In this way green auto loans make environmentally friendly vehicles more affordable. People who may not have been able to make payments on a conventional auto loan for their eco-friendly car might find a green auto loan much more manageable.


Green auto loans sometimes waive additional fees and hidden costs too. You may also be eligible for even better discounts by improving your credit score and other criteria.

Which Cars Qualify For a Green Auto Loan?

Each lender can stipulate their own requirements that classify a car as a green vehicle. Generally a green vehicle is any car which runs on cleaner sources of energy such as electricity, biofuel, or hydrogen. It’s important to do your research and find out specific requirements for any lender that you’re considering.

Fully electric vehicles and hybrids are generally good candidates for a green auto loan. Cars powered by a fuel cell are less popular but just as eco-friendly. Some green auto loans extend to vehicles that run on alternative fuels and those that are able to significantly lower emissions by utilizing green technologies.

Some lenders use the SmartWay designation as a way of determining if a vehicle qualifies for a green auto loan. This designation is awarded by the U.S. Environmental Protection Agency. It seeks to identify the most eco-friendly vehicles on the market.

The EPA rates every car, truck, and Sport Utility Vehicle. All vehicles are reevaluated for each model year. The SmartWay designation is given to vehicles with significantly lower emissions than average.

The vehicles are rated for greenhouse gas as well as smog forming emissions. They are awarded a score for each on a scale of 1 to 10. In order to attain the designation a vehicle must outperform on both scales.

Where To Find A Green Auto Loan

Green auto loans are not as easy to find as the standard type of car loan but they are increasing in availability. A growing number of banks are offering green auto loans but they may be more difficult to find in some areas. When banks are not offering you the loan you want, try a local credit union instead.

Sometimes you can find a green auto loan right at the dealership. Some dealers partner with the manufacturer to provide more borrowing options. It’s in both of their best interest that shoppers have access to financing they can afford since this allows them to sell more vehicles.

Another great option is to take your search online. Using a resource such as myAutoloan allows you to shop at your own pace and compare rates, payments, and fees from the comfort of home. If you find an offer you like, simply finalize the loan online and get your funds securely and conveniently.