How to Finance a Hybrid or Electric Car

How to Finance a Hybrid or Electric Car

Written by Bryan Daly
Fact-checked by Caitlin Wood
Last Updated November 30, 2021

These days, more drivers are looking to help the environment or reduce their fuel costs by buying a hybrid or electric vehicle. While the sales prices and associated costs can sometimes be higher, the investment can definitely be worthwhile, especially if you’re able to get around easier and minimize your carbon footprint in the process.

What Are Hybrid and Electric Cars?

Although both hybrid and electric cars can help you decrease your fuel consumption and environmental impact, there are a few key differences between them:

  • Hybrid Cars – Contain a regular gasoline engine and an electric battery pack, which makes them a slightly better option for driving long distances or travelling to remote locations where there aren’t any charging stations nearby.
  • Electric Cars – Are also powered by high-voltage battery packs or, in some cases, hydrogen fuel cells. Although you may not be able to drive long distances, most electric cars produce fewer emissions than hybrid or normal cars.

Check out the most affordable electric cars available in Canada.

What Types of Hybrid and Electric Cars Exist?

There are several hybrid and electric car brands and models in production, each of which has its own costs, benefits, drawbacks and specifications. Here are some of the more popular types of hybrid and electric cars available in Canada: 

  • Plug-in Hybrids – As the name suggests, a plug-in hybrid comes with a charging cable that you can plug into an external port at home, the office, or at a public terminal. Typically, they have larger battery packs than other kinds of low emissions vehicles, again making them ideal for longer drives. 
  • Battery Electric Cars – As mentioned, most fully electric cars come with a high-voltage battery pack that produces zero emissions or liquids. Although it can be worrisome to drive without the possibility of using regular fuel when your battery dies, public charging stations are becoming more abundant every year.
  • Series Hybrids – With this type of hybrid, the gasoline motor is solely for the purpose of recharging the car’s battery pack. Additionally, the wheels and the engine aren’t connected like a normal car. However, the semi-electric engine provides smooth handling and just as much acceleration as other green vehicles.
  • Parallel Hybrids – Are the most common kinds of hybrid vehicles seen on the road these days. In this case, an everyday automatic, manual or continuously variable transmission (CVT) will combine the gasoline engine and electric battery pack for an all-in-one driving experience.

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Where Can You Finance a Hybrid or Electric Car?

In Canada, there are three different places you can apply for a loan to finance your hybrid or electric vehicle. Once again, all of these sources have benefits and drawbacks, so be sure to do a lot of research before you apply with any of them.

Banks & Credit Unions

Traditional financial institutions are popular places to apply for any sort of financing, because loans may be larger, interest rates may be lower and repayment plans are often longer. That said, it can be difficult to qualify for financing from a bank or credit union, especially if you’re not a longtime member, you don’t have a great income or your credit score is low. 

Dealerships

Most auto dealers offer in-house financing. Not only is this more convenient, but you can also increase your approval chances and receive extra perks by providing a down payment or trading in your used car. Plus, many auto dealers will accept you with bad credit or weak finances. However, dealerships sometimes charge higher rates and have shorter repayment terms of 1 – 5 years. 

Alternative Lenders

Are the best places to apply if you have bad credit or a low income, as approval requirements are more flexible. If vehicle loans aren’t offered, you may be able to apply for a personal loan. Some alternative lenders will provide smaller loans with higher rates and shorter terms.

Best Hybrid and Electric Car Loan Providers

AmountInterest Term(Months)
Loans Canada Logo - Bad Credit Loans Canada$500 - $50,000Up to 46.96%12 - 84Learn More
Canada Drives$500 - $35,000$29.99% – 46.96%9 - 60Learn more
SkyCap Financial$500 – $10,00012.99% – 39.99%9 - 36Learn more
Carloans411$5,000 - $40,000Varies12 - 72Learn more
Car Loans Canada$7500 - $59,9953.95% +12 -96Learn more
Canada Auto Finance$5,000 - $45,0004.90 % - 29.95%36 - 72Learn more
Eden ParkVaries11.9% +12 - 84Learn more
Splash Auto Finance by RifcoUp to $50,000Varies12 - 84Learn more
SafeLendUp to $50,0008.99% +12 - 72Learn more

What Do You Need to Apply For Car Loan to Finance Your Hybrid or Electric Car?

Every lender, dealership and financial institution has different lending standards for their prospective customers. Some are more strict and only accept strong borrowers, while others are more lenient about who they approve. All that said, there are a few standard documents that you’ll need to present when applying for a car loan to finance the cost of your hybrid or electric car, including but not limited to:

  • A valid Canadian driver’s license
  • Personal government photo ID (passport, health insurance card, etc.)
  • To be past the age of majority in your province or territory (18 – 19+)
  • A clean driver’s history
  • An active driver’s insurance policy
  • Proof of your income (recent bank statements or pay stubs)
  • A pre-authorized debit form or VOID cheque (for loan deposit/payments)

Your Credit Report and Credit Score

While most lenders simply want to confirm that your income is good enough for you to afford all your car loan payments, many will check your credit report and credit score when you apply. This way, they can see how you’ve handled your previous credit products and how risky you could be as a client. The healthier both of these documents look, the easier it will be to qualify for a large loan with decent conditions.

Cost of Financing a Hybrid or Electric Car

Earlier, we also mentioned that hybrid and electric cars can be more expensive than normal gas-powered vehicles. Thankfully, a big enough car loan can help you finance almost any make or model, new or used. Besides the final sales price, here are some of the other costs you could encounter when financing a hybrid or electric car:

  • Down Payment – If you apply for dealership financing, you may need a down payment to be approved, which not everyone can afford. However, it can not only make you more eligible and earn you better loan conditions, it can decrease the length of your debt. So, if you can make the financial commitment, a down payment of at least 10% – 20% of the car’s sales price will have the best results. 
  • Interest – Some car loans have fixed interest rates that don’t change during your term. Others have variable rates, which fluctuate with Canada’s prime rate. Either way, your interest rate can increase the cost of your loan. This is particularly true if you have bad credit, weak finances or no down payment. In that case, the lender/dealer may consider you riskier and charge you a higher rate.
  • Sales Tax – Many drivers forget to factor in the sales taxes their hybrid or electric car could come with upon purchase. This could be the Goods & Services Tax (GST), Harmonized Sales Tax (HST), Provincial Sales Tax (PST) or Quebec Sales Tax (QST). Lenders in some provinces and territories only charge one type of sales tax, while others will charge a combination of them.
  • Fees – Your lender or dealership’s service and administrative fees can increase the size of your loan or vehicle cost too. When you apply with a lender, you may see more administrative fees for things like document processing and loan origination. At a dealership, you may see those same fees, plus others for any services the car has undergone, like pre-delivery inspection and maintenance.

If you manage to get approved for a car loan to finance your hybrid or electric car, you should also factor these other standard vehicle costs into your budget:

  • Electricity and/or gasoline
  • Servicing and repairs
  • Licensing and registration
  • Insurance

Pros and Cons of Financing a Hybrid or Electric Car

Before you apply for a car loan to purchase your hybrid or electric vehicle, be sure to get a loan and price quote from your lender or dealership. You can then add up all the potential costs and factor them into your budget. While you’re doing that, it’s also a good idea to weigh the pros and cons of financing a hybrid or electric car:

Pros

  • Quieter, more fuel-efficient and cleaner for the environment than normal cars
  • Electric cars can be an affordable option for city driving or shorter distances
  • Hybrids have the benefit of dual-energy sources and longer driving capacity
  • Most makes and models have good resale values (more people are going green)
  • Made of high quality, lightweight materials (better acceleration and security) 
  • Tax incentives are available for certain owners, such as:
    • $2,500 for short-range plug-in hybrid vehicles 
    • $5,000 for long-range plug-in hybrid, battery-electric and hydrogen fuel cell vehicles
    • Provincial/territorial incentives for homes, businesses and multi-unit buildings with charging stations

Cons

  • Some fully electric cars aren’t great for long-distance drives
  • Some hybrids can produce just as many emissions as regular vehicles
  • Higher maintenance and repair costs may apply (more expensive parts)
  • Sales prices can be much higher than the average gas-powered car
  • Some models have long recharging times and not-so-great performance
  • Public charging stations are not nearly as abundant as gas stations in Canada

Hybrid and Electric Car Financing - FAQs

Should I opt for a long or short car loan term?

Remember, most car dealerships only offer financing terms of around 1 – 5 years. Some financial institutions and alternative lenders can give longer terms to eligible borrowers. All that said, you must consider your budget before you apply for any sort of car loan in Canada, whether it’s for a hybrid, electric, or gas-powered car. Longer loan terms can be more affordable at first because they usually come with lower monthly payments and interest rates when the opposite is true of shorter terms. However, you will likely end up paying more interest and fees over the course of a longer-term, which can make your car loan far more expensive overall.

Can I qualify for 0% financing if I have bad credit?

Some dealerships do offer 0% interest financing on their car loans. However, it can be pretty tough to qualify for such a bargain if you have a bad credit score of 300 – 600. Since your bad credit could be because you missed multiple debt payments in the past, the lender/dealer may consider you less creditworthy and charge you a higher rate.  For the best chance of qualifying for 0% financing on your hybrid or electric car, you need to apply with a good credit score of 650 – 900 and a decent credit history filled with responsible payments. Essentially, the less risk you pose to your lender or auto dealer, the more creditworthy you’ll be considered and the better the eventual outcome will be.

Should I use a car loan or a personal loan to finance my hybrid or electric car?

Different financing products have different benefits and drawbacks. The same goes for car loans and personal loans. In the end, a car loan may be an easier option because of the collateral involved (the car is used to secure your loan) and the fact that you can make a large down payment or trade-in your used car, any of which can decrease the risk for the lender.  On the other hand, a personal loan might be less complicated to get approved for, since there’s generally less paperwork involved. More often than not, the approval process can be completed entirely online within a few minutes. Like a regular car loan, a lump sum of liquid money will be deposited into your bank account after approval.

Interested in Financing a Hybrid or Electric Car?

If that’s your goal, you’ll not only be helping the environment, you could be eligible for some appealing benefits, both on and off the road. Check out the Loans Canada website to learn more about hybrid or electric car financing. We can also connect you with the best lenders, dealerships and interest rates in your area.     

       

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and traveling the world in search of the coolest sights our planet has to offer. Bryan uses the BMO Cash Back Mastercard to earn cash back on everything from boring bill payments to exciting excursions. He is also a strong saver, holding both a TFSA and an RRSP account in order to prepare for his future while taking full advantage of tax benefits.

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