What is a green car loan?

Green car loans are personal loans tailored to the purchase of environmentally-friendly vehicles, as opposed to vehicles with an internal combustion engine requiring petrol or diesel as fuel.

When lending to customers purchasing a vehicle with the environment front-of-mind, banks and lenders may require the vehicle to meet fuel-efficiency standards in order to meet loan eligibility criteria. All lenders are different, so this might include limits on CO₂ emissions (grams per kilometre), maximum fuel consumption (litres per 100km), or restricting green loans to hybrid and electric vehicles only.

Green car loans may offer more competitive interest rates and repayment terms than traditional car loans as an incentive to consumers to choose an environmentally friendly option. In addition, green car loans can help borrowers save money on fuel costs and potentially benefit from tax incentives offered by state governments for purchasing environmentally friendly vehicles.

Classifying a 'green' car

When you think of a green or environmentally friendly vehicle, the first that come to mind are generally electric (EVs) or hybrid electric. Although these may be the most popular options, there are a number of other options available. Types of green cars that may be eligible for a green car loan include:

  • Battery electric vehicles (BEVs) - Often simply called "electric vehicles," BEVs run entirely on electricity and require recharging through a power source.

  • Hybrid electric vehicles (HEVs) - HEVs use both petrol and electricity for power. Unlike plug-in vehicles, they recharge their battery through the engine while driving, so no external charging is needed.

  • Plug-in hybrid electric vehicles (PHEVs) - PHEVs are another type of hybrid vehicle powered by a combination of petrol and electricity. As the name suggests, PHEVs can be plugged into an energy source to be recharged.

  • Low-emission vehicles - Certain newer vehicles powered solely by petrol may still be considered low-emission, thanks to advancements in technology and cleaner engine performance.

How do green car loans work?

With electric and hybrid vehicle ownership rising in Australia, green car loans are becoming a popular financing option for environmentally conscious drivers. These loans function much like traditional car loans but often come with extra benefits, such as competitive interest rates or reduced fees, to support the shift to low-emission transport.

Before applying for a green car loan, It's important to check the lending criteria of green car loan providers to determine if the vehicle you have your eyes on purchasing is in fact eligible.

Green car loan eligibility depends on meeting lender-specific criteria. For instance, Bank First approves green car loans for vehicles emitting 180 grams of CO₂ per kilometre or less, typically including new and hybrid models. Additionally, the vehicle must be manufactured within the current or previous year to qualify, focusing on recent, eco-friendly cars.

The Australian Government's Green Vehicle Guide provides data and tools to help you understand a vehicle's environmental impact.

How to compare green car loans

As people become more environmentally aware, many are seeking ways to decrease their carbon footprint. Purchasing an environmentally friendly vehicle is one way to achieve this goal, and green car loans provide financing options for these vehicles. To ensure you are getting the best possible deal, consider the following factors when comparing green car loans:

1. Eligibility criteria

Before comparing green car loans, first and foremost you must perform necessary checks to ensure the vehicle you intend to purchase is eligible. Each lender has its own eligibility criteria, ranging from the type of vehicle, its age and environmental rating based on the emissions it produces. It is essential to review these criteria before applying to ensure that you meet these requirements.

2. Interest rates

Green car loans will often have lower interest rates than traditional car loans, however this will vary across banks and lenders. To ensure you aren't slugged with a higher interest rate than necessary, compare interest rates and fees from different lenders using InfoChoice's comparison table above to determine which lender offers the best deal.

3. Fees and costs

Like other car loan options, green car loans will generally come with fees including establishment fees, ongoing fees, or early repayment fees. However some banks and lenders will waive fees as an added benefit for the purchase of an environmentally friendly vehicle. Just like the interest rate, it's important to compare the fees and charges of products on offer before settling on an option that may be right for you.

4. Loan term

Longer loan terms may have lower monthly payments, but they also mean paying more interest over the life of the loan. Consider the length of the loan term and determine if it aligns with your financial position, specifically your ability to make consistent repayments.

5. Incentives

In Australia, the purchase of a green car comes with the benefit of stamp duty waivers, even free or discounted registration across some states. Further, green car loans come with additional benefits, such as discounts on vehicle insurance or even subsidised charging for electric vehicles. These additional benefits can help offset the cost of the loan and may make one lender more appealing than another.

Comparing green car loans and traditional car loans

Green car loans are tailored for eco-friendly vehicles and often come with unique benefits, but how do they stack up against conventional car loans? Here's a quick overview to help you decide which option suits your needs.

Feature

Green Car Loan

Conventional Car Loan

Purpose

Specifically for environmentally friendly vehicles

Can be used for any new or used car, regardless of emissions or fuel type.

Interest Rates

Often lower to encourage eco-conscious purchases.

Standard rates based on lender policies and borrower profile.

Eligible Vehicles

Must meet environmental criteria (e.g. low CO₂ emissions, plug-in capability, newer models).

No restrictions on vehicle type, emissions, or age (within reason).

Incentives & Extras

May include perks like fee waivers, or EV charging offers.

Generally does not include additional sustainability incentives.

Loan Term Options

Similar to regular loans, but some lenders may offer longer terms for EVs due to higher upfront costs.

Standard loan terms based on loan size and borrower eligibility.

Environmental Impact

Supports the shift toward cleaner and more sustainable transportation options.

No specific environmental considerations tied to the loan.

Availability

Offered by select lenders with specific criteria.

Widely available through banks, credit unions, and lenders.

Benefits and drawbacks of a green car loan

Benefits

  • Environmentally friendly: A green car loan allows you to purchase an environmentally friendly vehicle that produces fewer emissions, which is better for the environment. Some banks and lenders have already flagged their intent to implement restrictions on lending to internal combustion engine vehicles, with Bank Australia pulling the pin from 2025, for example.

  • Lower running costs: Green cars are often fuel-efficient, which can help you save money on fuel costs over time. Electric vehicles also have fewer running parts, making them mostly cheap and fuss-free at service intervals. Additionally, some governments offer tax incentives for purchasing eco-friendly vehicles.

  • Lower interest rates: Lenders may offer more favourable interest rates and terms on green car loans as they incentivise more Aussies to purchase environmentally friendly vehicles.

  • Improved resale value: As demand for environmentally friendly vehicles continues to grow, the resale value of green cars could remain more robust than old internal combustion engine vehicles.

  • Government incentives: Many states and territories offer reduced rates on stamp duty and vehicle registration charges. See the complete list of benefits in the Green Vehicle Guide.

  • Lower maintenance costs: Green cars, especially electric vehicles, have fewer moving parts, which can mean less wear and fewer repairs over time.

Drawbacks

  • Availability of green cars: In Australia, the selection of green cars eligible for a green car loan is limited compared to other nations. As governments at both federal and state levels continue to implement policies to enhance the uptake of environmentally vehicles, more manufacturers are expected to place their models upon Australian shores.

  • Higher purchase price: Green cars may be more expensive to purchase upfront than standard vehicles. However over the life of the vehicle, the savings on fuel costs and potential tax incentives may help offset this initial cost.

  • Reliability concerns: Many of the cheapest and most popular EVs coming to the Aussie market are from China, of which there are reliability concerns. Batteries often have warranties but a failure outside of this period can cost thousands to replace.

  • Availability of charging stations: Electric cars require charging stations, which may not be readily available in all areas, leading to inconvenience for the owner.

  • Battery range vs fuel: Generally battery electric vehicles have a lower range than petrol vehicles, meaning longer trips would require more frequent stopping and starting in order to recharge.

  • Longer loan terms: To offset the higher purchase price of green cars, lenders may offer longer loan terms. This means that you could be paying interest for a longer period and potentially end up paying more over the life of the loan

  • Depreciation uncertainty: While resale values are improving, the green car market is still evolving and prices can fluctuate. New technologies can mean old models depreciate very quickly.