What Are Green Auto Loans? An Eco-Friendly Guide
What are green auto loans and how can you apply for one?
Here is all the info you need on car loans in Canada for eco-friendly vehicles.
What Are Green Auto Loans?
Essentially, a green car loan is a type of auto financing that helps you purchase a fuel-efficient vehicle, such as an electric (EV) or plug-in hybrid.
Several banks in Canada offer dedicated green vehicle loans, while many include electric vehicles as part of their standard car loan offers, so there is no shortage of lenders. In addition to green auto loans, those interested in environmentally-friendly vehicles can apply for government incentives that significantly reduce the price of both used and new EVs.
How do green auto loans work?
Applying for green vehicle loans is similar to taking out a car loan. Namely, you’ll need to apply with a lender and get approved before you can start shopping for your new car. Once you’ve found the perfect eco-friendly ride, the loan will be used to finance the purchase and you’ll make monthly payments on it until it’s paid off entirely.
The main difference between green vehicle financing and regular car loans is that the former can come with lower interest rates, more favourable terms and discounted fees in order to incentivize buyers to consider eco-friendly cars. And this incentive is badly needed.
How many electric vehicles are there in Canada?
Back in 2020, only 3.5% of all new cars registered in the country were zero-emission vehicles. Two years later and the situation has not improved.
The Toronto Sun reports that in 2022 electric vehicles account for less than 2% of all cars in Canada. And while stats may show a 55% uptick in the purchase of EVs, it seems no one outside of Toronto, Montreal and Vancouver is buying electric vehicles.
One reason behind the slow adoption of EVs in Canada is the cost. Electric vehicles are more expensive than gasoline or diesel-powered cars. Actually, according to auto insurance comparison site GetJerry, EVs in Canada range between $37,498 and $44,999, with some brands, like Tesla, going up to $59,990. On the other hand, the price of a regular car in Canada starts at $39,755.
Repairs and maintenance also cost more which means that insurance premiums are higher as well.
Still, electric cars use less fuel (or no fuel depending on the type of EV), making them significantly cheaper to run than gas-powered vehicles—the cost of gasoline in January 2022 was 144.4 cents per litre and has since increased to 146.9 cents per litre. What’s more, EVs are better for the environment, which may not be the first thing that comes to mind when shopping for a new car, but given the impacts of climate change, it is definitely something to consider.
Where can you get green vehicle loans?
Several banks and lenders in Canada offer special rates and terms for the purchase of zero or low-emission vehicles. Most notable financial institutions that offer green auto loans include:
The Canadian Imperial Bank of Commerce (CIBC)
One of the biggest banks in the country, CIBC offers up to 100% financing on a new or used EV through their Green Vehicle Program. Loan amounts start from $20,000, while terms range from one to 8 years at a fixed interest rate throughout.
What’s more, CIBC donates $25 to the Nature Conservancy of Canada for every green loan they approve.
RBC Royal Bank
The RBC Clean Energy Vehicle Program provides special rates for qualifying clean energy vehicles as well as flexible payment options (ranging from monthly, semi-monthly, bi-weekly or weekly). There are no early repayment fees and terms can go up to 96 months.
Scotiabank has a dedicated financing option for electric vehicles, as well. Known as the EcoLiving Auto Loan, it provides loan amounts from $75,000 to $200,000 and discounted fixed rates in the first month. The loan can be used in conjunction with federal rebates on zero-emission vehicles (more on this below).
Vehicles Eligible for Green Auto Loans
So what qualifies as a green car?
Typically, green cars are defined as vehicles that use alternative fuel or electricity instead of diesel or gasoline. That said, there are four main types of EVs in Canada:
Battery Electric Vehicles (BEVs)
These run on electricity and produce zero emissions. BEVs are incredibly convenient as well—it takes up to 45 minutes to charge the vehicle (on the fastest charger) at any of the 1,000+ public chargers across the country. The only downside is that BEVs are typically more expensive than other types of electric vehicles.
Plug-In Hybrid Electric Vehicle (PHEV)
PHEVs run on a plug-in battery-powered electric motor and switch to their diesel or gasoline-powered engine when they run out of juice. PHEVs are a tad cheaper than BEVs, although they come with additional fuel costs. On the plus side, you can charge them at any public or private charging station as well as gas stations across Canada (when you need fuel).
Hybrid Electric Vehicles (HEVs)
As the name suggests, these cars work on electricity and a gasoline/diesel engine—the operating system determines which power is used. You can recharge batteries via regenerative braking and through the internal combustion engine rather than plugging them into a power source. HEVs are the cheapest of all three types of EVs and use up less fuel than standard cars. They do not, however, qualify as zero-emission vehicles since they cannot operate with an internal combustion engine.
Fuel Cell Vehicles
Powered by hydrogen, FCVs are newer so the adoption rate is lower. Therefore, not many lenders offer special rates and terms on these cars, but you should still contact the bank and ask if any rebates or conditions apply for the purchase of FCVs.
Most lenders will accept any of the three types of electric vehicles mentioned above when you apply for a green auto loan. Bear in mind though that each lender has its own eligibility requirements, which include the type of car you want to purchase. Therefore, it is best to contact several loan providers and take a look at which vehicles qualify for their green auto loans before you start shopping for cars.
How to Apply for a Green Car Loan?
Ready to finance the purchase of an electric vehicle? Here is a step-by-step procedure.
1. Check your credit
It is unlikely that you will be approved for financing without a good credit score. So check your credit report and try to pay off some smaller debts to give your rating a boost (if needed).
2. Find a lender
If you are buying online
You need to make sure that the vehicle you are interested in is eligible for special interest rates. Contact the lender directly and ask about your preferred model.
Buying from a dealership
If you are purchasing an EV through a car dealership, the dealer will broker the loan for you and check whether the car you want qualifies for lowered interest rates.
3. Compare rates
Whichever purchase option you go for, you need to take a look at offers from several lenders before you decide on one. Here are the things you need to check:
- How much is the interest rate?
- How flexible are repayments?
- How long is the loan term? What happens if you want to repay the loan early?
- Can you take a payment break?
Once you choose a deal that works for you, apply for the loan (or ask the dealer to apply on your behalf) and if approved, you can drive away with your new ride.
Green Auto Loans Cost
The same calculations apply for green auto loans as they do for standard car financing. In other words, you need to consider the following when taking out a car loan for the purchase of an EV or hybrid vehicle.
One of the most important things to look at is the interest rate offered by the lender. Luckily, several banks offer lower interest rates on green car loans—ranging between 3.5% and 4%, unlike traditional car loans that charge 5% and more.
You should also consider whether you are applying for a fixed or variable interest rate as this can impact the overall cost of the loan.
As already mentioned, electric vehicles cost more than gas-powered cars which means you will have to provide more money as a down payment for the loan. The good news is that some banks like CIBC provide up to 100% financing for the purchase of a new or used EV—meaning that if approved, your loan will cover the full cost of the car.
In addition to lower interest rates, you can find discounted fees on loans for eco-friendly vehicles.
These also tend to be more flexible than conventional car loans, with repayment terms stretching up to 96 months.
Green Auto Loans Alternatives
Despite favourable loan terms and rates, the best way to finance an electric car in Canada is to apply for a government rebate.
Currently, the Canadian government offers the following incentives.
In March 2019, the Canadian government launched the Incentives for Zero-Emission Vehicles (iZEV) Program offering reduced prices and lease payments for ZEVs.
iZEV provides rebates of up to $5,000 for the purchase of new battery-electric, hydrogen fuel cell and long-range plug-in hybrid vehicles. Incentives of up to $2,500 are available for shorter-range hybrid vehicles as well.
The rebate is applied when you buy or lease a car from the dealership or purchase it online. The program will run until March 2025 or until funds are exhausted. (as of October 2022, there were over $172m remaining funds).
You can find the complete list of eligible vehicles here.
In addition to the federal program that subsidizes the purchase price of an electric car, several provinces offer discounts of their own for eligible vehicles.
Quebecers can qualify for rebates up to $7,000 on EVs cheaper than $65,000 and up to $5,00 on hybrid vehicles whose manufacturer’s suggested retail price (MSRP) is under $60,000.
BC, along with Quebec, was one of the first provinces to offer discounts on EVs. With B.C.’s CleanBC Go Electric program individuals buying or leasing a new EV can get
- Up to $4,000 for new BEVs and FCEV
- Up to $2,000 for a new PHEV
To qualify for the program you need to purchase or lease an EV with an MSRP of under $55,000.
BC also provides SCRAP-IT incentives of up to $500 that you can use towards the purchase of a new or used EV. You must scrap your existing gas or diesel-powered vehicle to qualify.
Newfoundland and Labrador
EV drivers can get rebates of $2,500 when they buy old or used EVs or hybrid vehicles.
The Electrify Nova Scotia Rebate Program offers up to $3,000 on new EVs and up to $2,000 on used vehicles, as well as up to $2,000 and $1,000 on short-range PHEVs, respectively. The purchase price must be between $10,000 and $55,000 (between $10,000 to $40,000 for PHEVs).
Prince Edward Island
Islanders who want to buy a new or used green vehicle could receive a $5,000 rebate on the purchase price—one of the most generous incentives for used EVs in Canada. The government offers a $2,500 discount on plug-in hybrids and a free Level 2 charger for qualifying buyers.
Those living in New Brunswick could be eligible for rebates of
- $5,000 on new BEVs & long-range PHEVs
- $2,500 on new short-range PHEVs & used BEVs
- $1,000 on used plug-in hybrids
Rebates of $5,000 and $2,500 are available for leases of new and used EVs, accordingly.
The Yukon government provides residents with $5,000 towards the purchase of a new electric vehicle and $3,000 off the price of a new hybrid car.
Note: Most of the provincial incentives are ‘stackable’—you can use them in combination with federal rebates and potentially save up to $10,000 off the purchase of your new eco-friendly ride. Before you apply though, carefully check the eligibility criteria.
Conclusion: Are Electric Vehicles Loans Worth It?
If you are thinking about going green, but can’t afford to pay for the car outright, a green auto loan can be a great way to finance the purchase. It would be even better if you could combine it with one of the government rebates available, thereby saving even more when you buy or lease your new environmentally-friendly vehicle.