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What is a green car loan?

A green car loan is a type of car financing specifically for eco-friendly vehicles. Every lender may have a different definition of what a green car is, but it’s generally accepted that eco-friendly vehicles are cars that produce less carbon dioxide emissions than traditional fuel-powered cars. Lower carbon emissions typically reduce a car’s impact to the environment.

Green car loans are reasonably new to the Australian personal lending market, and are indicative of a growing interest in sustainability. However, because it’s a newer concept, not every lender provides dedicated green car loans.

How do green car loans work?

Green car loans work in much the same way as standard car loans. First, you'll need to compare your lending options and choose a suitable loan provider that will lend you the money you wish to borrow to purchase your green vehicle. Then, you'll repay the borrow amount, plus interest, in regular instalments over a predetermined period of time.

How can a green car loan save you money?

Not only might investing in a low-emissions vehicle allow you to reduce your carbon footprint and minimise your contribution to climate change, it could also save you money on finance.

That's because green car loan interest rates tend to be more competitive than standard car loan interest rates, as lenders incentivise borrowers to make sustainable choices. In addition to lower rates, the lender may waive certain fees on the car loan. 

But keep in mind, the interest rate discounted and the amount of fees waived will vary depending on the lender, so it's important to compare your options.

To find out how much you could save by going for a green car loan, check out RateCity’s Car Loan Calculator.

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What type of car can you buy with a green car loan?

Green cars aren’t limited to only hybrid and electric vehicles (EVs). They can also be new cars that have lower CO2 emissions than a comparable make and model. Some of the types of green cars that may be eligible for a green car loan include:

  • Battery electric vehicles (BEVs) - Commonly referred to as simply 'electric vehicles', BEVs are exclusively powered by electricity. They must be plugged into an energy source to be recharged.
  • Hybrid electric vehicles (HEVs) - HEVs are a type of hybrid car that are powered by a combination of petrol and electricity. They don't need to be plugged in to be charged, as the battery pack is charged by the engine when driving.
  • Plug-in hybrid electric vehicles (PHEVs) - The other type of hybrid vehicles, PHEVs, are also powered by a combination of petrol and electricity. However, as their name suggests, they can be plugged into an energy source to be recharged.
  • Low-emission vehicles - Certain makes and models of newer cars may be classified as low-emission vehicles despite being powered exclusively by petrol.

Check your preferred green car loan provider's lending criteria to see if the car you're interested in is eligible for a green car loan, or consider taking a look at the Australian Government's Green Vehicle Guide.

What other costs do you need to consider when buying a green car?

Not all green cars will come with added costs. But, if you're buying an EV you'll likely want to install a home charging station. The most efficient way for you to charge your BEV or PHEV is at home, while you sleep, as it's unlikely you'll need to disrupt the charge to use your car during this time.

Installing EV charging infrastructure at home can be fairly straight forward. The car dealership where you purchase your EV should be able advise you on costs associated with purchasing and installing a charging station. You may be able to take out a green personal loan to help with the cost if you come up short.

What are the features of a green car loan?

Some of the most important features to consider when shopping for a green car loan include the following:

Secured vs unsecured loan - Car loans, particularly those taken out for the purchase of newer vehicles, are most commonly secured on the car itself. However, you may be able to purchase a green car with an unsecured personal loan.

Interest rates - The loan's interest rate will determine how much you pay in total interest charges. You'll need to decide whether a fixed or variable rate is the best choice for you. Fixed interest rates will stay the same throughout the life of the loan, while variable rates can fluctuate with the market.

Comparison rates - Interest rates aren't the only cost to consider when comparing your loan options. To get an idea of the overall cost of a loan, take note of its comparison rate, which factors in the interest rate and standard fees.

Fees - Some of the types of fees you may be charged on your loan include upfront fees, early repayment fees, exit fees, monthly fees and/or other ongoing fees.

Extra features - Some lenders may offer extra features such as the option to make extra repayments, and the ability to withdraw those extra repayments with a redraw facility.

Loan term - The loan term is the length of time you have to pay off the loan. Car loans tend to have loan terms of three to five years, but often you may find longer or shorter terms are available. Keep in mind that typically, the longer the loan term, the cheaper the repayments, but the more you'll likely pay in interest charges.

Pros and cons of green car loans

An important part of your green car loan comparison is weighing up the pros and cons, so you can be confident you're making a decision that's right for you. Here are some that may be worth considering:

  • Green car loans often have lower interest rates than regular car loans
  • Some lenders may waive certain fees on their green car loan offering
  • Your car buying budget could potentially be expanded by taking out a green car loan
  • Green car loans are as widely available as standard car loans
  • The lending criteria for green car loans can be more strict
  • Green car loans are typically only available for new cars
  • The purchase cost of an eligible green car may be higher than a regular car

How do you compare green car loans?

If you're looking for a little extra help with your green car loan comparison, RateCity has a number of comparison tools that offer a selection of handy features.

You might like to start by using our green car loan comparison table. It allows you to use filters to narrow down your search to only the loan products that best suit your preferences.

Once you have an idea of how much you'd like to borrow, you can use RateCity's car loan calculator for a car loan repayment estimate. Simply enter the loan amount, your preferred interest rate, and loan term to calculate what your weekly, fortnightly or monthly repayments could cost you.

And for an up-to-date look at which green car loans are topping the ranks, check out RateCity's car loan leaderboard. The top-rated green car loans on the leaderboard are determined by RateCity's Real Time Ratings™ system, which ranks car loans based on loan costs and flexibility.

Before submitting a loan application for a new car loan, be sure to check the lender's eligibility criteria and product disclaimers, and consider reaching out to the lender directly with any questions you may have about about your personal financial situation.

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

What is a car loan?

A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.

What is a loan term?

The loan term is the amount of time the lender gives you to repay the car loan. For example, if you take out a $20,000 car loan with a five-year loan term, you would be expected to pay off the entire $20,000 (plus interest) within five years.

What is a loan-to-value ratio?

The loan-to-value ratio, or LVR, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have a loan-to-value ratio of 75 per cent. Loan-to-value ratios change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the loan-to-value ratio would now be 67 per cent.

What is vehicle finance?

Vehicle finance, also known as a car loan, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Vehicle finance can be used for both new and used vehicles.

This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.