Green Car Loans Explained: Lower Rates for Eco-Friendly Vehicles

Green car loans are a relatively new addition to the Australian lending landscape, offering reduced interest rates for borrowers purchasing environmentally friendly vehicles. These products recognise the lower running costs, reduced environmental impact, and growing demand for electric and hybrid vehicles by incentivising buyers with more affordable finance. In this guide, we explain how green car loans work, what vehicles qualify, how much you can save, and how to apply.

What Is a Green Car Loan?

A green car loan is a vehicle finance product that offers a discounted interest rate — typically 0.50 to 1.50 per cent below standard car loan rates — for the purchase of eligible eco-friendly vehicles. The concept is similar to green home loans, which offer rate discounts for energy-efficient properties. Green car loans are offered by a growing number of Australian lenders, including major banks, credit unions, and specialist car finance providers. The specific rate discount, eligibility criteria, and terms vary by lender. The rationale behind the rate discount is twofold. First, lenders want to position themselves as environmentally responsible and attract the growing segment of buyers choosing electric and hybrid vehicles. Second, there is a risk-based argument: borrowers who choose fuel-efficient vehicles tend to have lower running costs, which may improve their ability to service the loan.

What Vehicles Qualify?

Eligibility criteria vary by lender, but green car loans generally cover the following vehicle types. Battery Electric Vehicles (BEVs): Fully electric vehicles with no internal combustion engine. Examples include the Tesla Model 3, Tesla Model Y, BYD Atto 3, Hyundai Ioniq 5, Kia EV6, MG4, Polestar 2, BMW iX1, and Mercedes EQA. All BEVs qualify with every lender that offers green car loans. Plug-in Hybrid Electric Vehicles (PHEVs): Vehicles that combine an electric motor with a petrol engine, with the ability to charge the battery externally. Examples include the Mitsubishi Outlander PHEV, MG HS Plus EV, and BYD Seal. Most lenders include PHEVs in their green loan criteria. Hybrid Vehicles (HEVs): Vehicles that combine an electric motor with a petrol engine, but the battery is charged only through regenerative braking (not externally). Examples include the Toyota Corolla Hybrid, Toyota RAV4 Hybrid, and Hyundai Tucson Hybrid. Some lenders include standard hybrids, while others restrict green rates to BEVs and PHEVs only. Fuel-Efficient Vehicles: A small number of lenders extend green rates to any vehicle that meets certain emissions or fuel efficiency thresholds, even if it is a traditional petrol or diesel vehicle. This is less common but worth asking about. The vehicle typically needs to be a new or near-new model (generally less than 3 to 5 years old) to qualify for the green rate. Older used EVs or hybrids may not be eligible, depending on the lender.

How Much Can You Save?

The savings from a green car loan come from the reduced interest rate. Here is a comparison using a $50,000 loan over five years: At a standard secured car loan rate of 6.49 per cent, total interest over the term is approximately $8,570, with monthly repayments of $976. At a green car loan rate of 5.49 per cent, total interest over the term is approximately $7,190, with monthly repayments of $953. The difference is approximately $1,380 in total interest saved and $23 per month in lower repayments. On a larger loan amount (such as $70,000 for a mid-range EV), the savings increase to approximately $1,930 over five years. While these savings are meaningful, they are just one component of the total cost benefit of choosing an eco-friendly vehicle. When you add in the government incentives (FBT exemption, state rebates, stamp duty savings) and lower running costs (cheaper fuel, reduced servicing), the total financial advantage of going green can be substantial.

Comparing Green Car Loans

When comparing green car loan offers, consider the following factors. Interest rate: Compare the actual rate offered, not just the discount off the standard rate. A lender offering a 0.50 per cent discount off a 7.00 per cent standard rate (6.50 per cent) is more expensive than a lender offering a 0.70 per cent discount off a 6.19 per cent standard rate (5.49 per cent). Comparison rate: The comparison rate includes most fees and charges, giving you a more accurate picture of the total cost. Always compare green car loans using the comparison rate. Eligible vehicles: Confirm that your specific vehicle qualifies. Some lenders restrict green rates to BEVs only, excluding hybrids. Loan features: Check whether the green loan allows extra repayments, early repayment without penalty, redraw facilities, and flexible terms. Some green loans have more restrictions than standard products. Fees: Establishment fees, monthly fees, and early termination fees can erode the benefit of a lower rate. Look for products with low or no fees.

Green Car Loans vs Standard Car Loans

Beyond the rate difference, green car loans are typically identical to standard secured car loans in their structure. They are fixed-rate loans secured against the vehicle, with terms ranging from one to seven years. The application process, documentation requirements, and settlement procedures are the same. Some lenders may have slightly different LVR (loan-to-value ratio) criteria for green loans, potentially allowing borrowing up to 100 per cent of the vehicle value (including on-road costs) for EVs, whereas standard loans may require a deposit for some borrowers.

Can You Refinance to a Green Car Loan?

If you recently purchased an eligible vehicle but financed it with a standard car loan, you may be able to refinance to a green car loan and benefit from the lower rate. The process is the same as any car loan refinance — the new lender pays out your existing loan and sets up a new loan at the green rate. The savings need to justify any costs associated with refinancing, such as early termination fees on your existing loan and any establishment fees on the new loan. On a relatively new loan with a significant rate difference, the savings can easily exceed the costs.

How to Apply

Applying for a green car loan is straightforward. You will need standard documentation including proof of identity, proof of income (pay slips or tax returns), details of the vehicle you are purchasing, and your financial position (assets, liabilities, expenses). Our finance team can compare green car loan offers from our panel of over 50 lenders and find the most competitive rate for your specific vehicle and financial situation. Whether you are buying a brand new Tesla, a used Hyundai Ioniq 5, or a Toyota Corolla Hybrid, we can help you secure the right financing at the lowest available rate. Pre-approval is available, which gives you a confirmed budget and rate before you shop for a vehicle. This puts you in a strong negotiating position and avoids the pressure of arranging finance at the dealership.

The Future of Green Car Finance

As the Australian EV market continues to grow (EVs now represent over 10 per cent of new car sales), we expect green car loan products to become more competitive and more widely available. Several lenders are already expanding their eligibility criteria and increasing their rate discounts to attract EV buyers. The combination of government incentives, lower running costs, and discounted finance rates is making electric vehicles increasingly affordable for everyday Australians. If you have been considering making the switch to an EV, the financial case has never been stronger.