Is the green auto loan for you?
Electric and hybrid vehicles offer the promise of lower maintenance and fuel costs as well as lower emissions, but that price isn’t always easy to swallow. The average electric vehicle costs $10,000 more than the average gas-powered vehicle in 2021, according to the Natural Resources Defense Council. That could change as EVs become more common, but for now, expect a hefty upfront cost when you buy one of these cars.
That might put them out of reach for some, but there’s a little-known financing option that could make all the difference. Here’s what you need to know.
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Green auto loans offer special terms for buyers of green vehicles
Green auto loans are similar to conventional auto loans in many ways, but they’re only available to those buying a qualifying hybrid or electric vehicle. Eligible individuals can take advantage of lower interest rates, extended repayment terms, or both, to reduce the monthly cost of financing an electric vehicle.
These loans are becoming more and more popular, although they are far from being a common offer. A few banks have them, but you’re more likely to find them at credit unions.
Each lender has its own rules that dictate which vehicles qualify and what types of rates and repayment terms are available. Some require the vehicle to have SmartWay certification from the Environmental Protection Agency. This title is awarded to the makes and models of vehicles that offer the lowest emissions in their model year.
Many green car loans charge interest rates at least 1% lower than what the lender charges for conventional car loans, and some offer repayment terms of up to 84 months. Spreading your payments over this period may increase the amount of interest you pay over the term of the loan, but it will also significantly reduce your monthly payments.
How to find a green car loan
Before shopping around for a loan, it’s important to do what you can to boost your credit score. All lenders use this information when calculating your interest rate, as it gives them insight into the likelihood of you defaulting on your loan. A lower credit score indicates higher risk and lenders charge these borrowers a higher interest rate.
The next step is to find lenders who offer green auto loans. Start by looking at credit unions and local banks. You can also find lenders online who also offer green car loans. Check out each one and review their eligibility criteria, average rates, and quality of customer service.
Pick a handful for quotes. You will need to know the make and model of the vehicle you plan to buy and the purchase price to do this. If you don’t yet know exactly how much you will pay for the car, you can make an estimate.
Do your best to complete all of your requests about a month apart. Credit bureaus typically count multiple inquiries made within a short period of time as one inquiry to account for normal comparison buying behavior. But if you wait longer, you’ll get more inquiries, which can hurt your credit score.
Once you’ve found a lender that’s right for you, you can complete the paperwork and get the money you need to buy your vehicle. You’ll make monthly payments like you would with a conventional auto loan until you’ve paid off the balance.
And if you’re unable to find green auto loans that are right for you, don’t be afraid to check out some conventional auto loans as well. Some offer discounts for electric vehicles that could help you get an affordable rate, especially if you bundle insurance. By exploring all of your options, you will increase your chances of scoring a lot.
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