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 could include Co2-grams/km output, maximum fuel usage per 100km, or only extending the green loan option to hybrid or electric vehicles.

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) - Commonly referred to as 'electric vehicles', BEVs are exclusively powered by electricity. They must be plugged into a battery as 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) - 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 makes and models of newer cars may be classified as low-emission vehicles despite being powered exclusively by petrol or diesel.

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. 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.

Benefits and drawbacks of a green car loan


  • 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.


  • 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.

  • 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.