Electric vehicles are generally more expensive than their petrol equivalents. The good news is that a handful of Australian lenders are now offering consumers 'green car loans', many of which come with a reduced interest rate on eligible eco-friendly vehicles.
But are these new green loans as worthy financially as they are environmentally? And how do you find the loan that's right for you? We take a look at your options.
What is a green car loan?
Green car loans are marketed as an incentive for consumers to buy qualifying eco-friendly vehicles instead of standard petrol cars, which are more damaging to the environment.
Green loans are different from standard car loans in that they generally come with lower interest rates or certain waived fees.
Green car loans are just one of several environmentally friendly initiatives that Australian financial lenders are now offering on a range of qualifying products.
Green loans are different from standard car loans in that they generally come with lower interest rates or certain waived fees
These include green products for your home, such as solar panels, water tanks, insulation, double glazing and energy-efficient appliances.
You can now also invest in a green home loan that comes with discounted interest rates for energy-efficient houses that have a smaller environmental footprint.
'Like any other car loan'
Andy Kollmorgen, investigations editor at CHOICE, has some sage advice on green car loans: "Most people would agree that reducing our individual carbon footprint is a good thing, and buying an eco-friendly car is one way to do that," he says.
"With green car loans, some lenders offer incentives in the form of better rates for certain models. Creating less car pollution is certainly a worthy goal, but prospective car buyers should approach the transaction like any other car loan."
What is an 'eligible' eco-friendly car?
A vehicle's eligibility for a green loan depends entirely on a lender's criteria – and these can vary. If there's one particular eco-vehicle you want, do your homework to make sure it meets your lender's specified requirements.
You can review and compare a range of eco-vehicle makes and models using the government's Green Vehicle Guide. This gives information on the environmental performance of light vehicles sold in Australia and will help you determine whether the car you want meets your lender's criteria.
Before signing, make sure you can afford the repayments as well as any fees, charges or balloon payments (the lump sum you sometimes have to pay towards the end of a loan).
Are green car loans cheaper than standard car loans?
Green car loans aren't necessarily cheaper than standard car loans, so do your homework and compare all loan options, fees and conditions carefully to make sure you get the best deal possible and the right fit for you.
Can a green car loan save me money?
Electric vehicles are an expensive outlay, but you can save money on running costs such as fuel. Depending on where you live and which car you're looking at, there are also some state and federal incentives that can help reduce the costs of buying a new electric or hybrid car.
A green car loan can potentially reduce the interest rate on a car loan, which will save you money over the period of the loan and could help you pay it off sooner. But, as with any other loan, you should shop around before you choose a policy, as you could save thousands of dollars in interest.
Other pros and cons
Lending criteria for green car loans can be extremely strict, so you'll need to do some thorough homework about your chosen vehicle's eligibility. Also, some eco cars can cost more than standard new cars, so your loan amount may be higher.
CHOICE's Andy Kollmorgen suggests reading the fine print to make sure you can afford not only the regular payments, but also any fees, charges and balloon payments (a lump sum you may have to pay the lender at the end of the loan term).
In general, a personal loan from a bank or other lender is a better idea than car-dealer finance
Andy Kollmorgen, CHOICE investigations editor
"In general, a personal loan from a bank or other lender is a better idea than car-dealer finance, and always read the terms of conditions of any loan with a keen eye," he says.
Also, if you choose a loan with a variable interest rate, you should be aware that your regular payment may change.
Which lenders offer green car loans?
The Australian market for eco-friendly low-emission vehicles lags behind the rest of the world, so there aren't as many green car loan policies on offer as there are standard car loans.
Here, we look at some lenders that offer green loans to see what their rates and fees include. (All rates and fees were current in July 2021.)
Bank Australia
Bank Australia (formally MECU) was the first Australian bank to switch to 100% renewable energy and boasts a range of public commitments to sustainability and environmental practices. It markets its low-emissions vehicle (LEV) loans as an incentive for consumers to reduce greenhouse gas emissions in Australia.
Vehicles qualifying for LEV pricing benefits can be new or used, but must be purely electric, plug-in hybrid electric, regenerative hybrid or have internal combustion engines that produce less than 125g/km tailpipe CO2 (g/km) as published by the Green Vehicle Guide.
Rates
Fixed rate: 5.45% a year.Comparative rate: 5.45% a year.
Bank Australia will also take one percent off its normal car loan interest rate for qualifying LEV cars.
Fees
A one-off $150 establishment fee which is waived for vehicles that meet an Australasian New Car Assessment Program (ANCAP) rating of five stars.
If there's a particular eco-vehicle you want, make sure it meets your lender's requirements.
Bank First
Bank First describes its green car loan as a way to reward its customers' eco-friendly choices.Eligible cars must have a CO2 value of 180g/km or less – generally, this will include new cars, hybrid cars or cars that have lower emissions for their size. To find out if your car is eligible, email the bank directly.
Rates
Promotional fixed rate: 5.29% a year (three percent off the standard rate).
Promotional comparison rate: 5.56% a year (three percent off the standard rate).
Fees
A one-off $195 establishment fee, with no ongoing fees.
Bendigo Bank
Offers a secure green personal loan that can be used for A-rated vehicles emitting less than 130g oCO2 per kilometre.
Rates
Fixed interest rate: 6.79% a year.
Comparison rate: 7.21% a year.
Fees
An application fee of $150 and a document preparation fee of $100. There may also be ongoing and miscellaneous fees, depending on your circumstances.
Beyond Bank
This 100% customer-owned bank offers green loans for a range of environmental purposes. There are two car-loan options for eligible vehicles (combined tailpipe CO2 emissions of 180gm/km):
Environmental Low Rate Car Loan
Rates
Interest rate: 6.24% a year.
Comparison rate: 6.93% a year.
Fees
There are a range of fees depending on your circumstances, including an establishment fee ($175), a security documentation fee ($25), a monthly admin fee ($5) and a Personal Property Securities Register (PPSR) search and registration fee ($17.50 each).
Environmental No Fee Car Loan
Rates
Interest rate: 7.24% a year.
Comparison rate: 7.24% a year.
Fees
None.
Loans.com.au
This lender offers what it calls a 0.7% discount if you buy a 'qualifying' green car. One of the lender's representatives can explain what 'qualifying' means over the phone. But the website also says that if a car is a new or demonstration vehicle and is more efficient than average for a car of its size – or is a hybrid vehicle – it's likely to be eligible.
Rates
Fixed rate: 3.97% a year.
Comparison rate: 4.51% a year.
Fees
A one-off single establishment fee of $400 and no monthly account-keeping fees.
Police Bank
Police Bank offers green loans for electric vehicles and other green initiatives. You don't need to be employed by the police to get a loan, but you will need to apply for membership of Police Bank.
Rates
Fixed rate: 5.79% a year.
Comparison rate: 5.92% a year.
Fees
There is an establishment fee of $98, but no ongoing account-keeping fees. A fee applies for early payout of the loan based on how much you have left owing.
Transport Mutual Credit Union
The credit union is currently promoting an initiative called The GreenRoad, which it describes as "a green loan for electric or hybrid vehicles, and the means to power them".
Details on which vehicles are eligible isn't readily available, so you'll have to contact the union directly. However, the website states that electric vehicles, hybrid electric vehicles and bicycles (including e-bikes) are included.
Rates
GreenRoad car loan –
Interest rate: 4.74% a year.
Comparison rate: 5.04% a year.
Fees
An establishment fee of $220.
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