What is an Electric Vehicle Loan (Green Car Loan)?

Are you among the many Indians who are planning to switch to an electric vehicle (EV)? With EV sales in India breaking all records and the government offering incentives, many are looking at the change. But let's face it — electric two-wheelers and four-wheelers aren't inexpensive. That's where an electric vehicle loan or green car loan comes into the picture.

Here in this blog, we'll tell you all you need to know about electric vehicle loans, how they work, their advantages, how to apply, tax benefits, and the answers to all your burning issues.

What is an Electric Vehicle Loan?

An electric vehicle loan (EV loan) is a type of specialized loan for the purchase of electric cars, scooters, or bicycles. It is like a green car loan to finance zero- or low-emission vehicles. EV loans differ from standard auto loans since they usually have lower rates of interest, longer loan periods, more favourable terms, and special benefits, all making them a good option for environmentally friendly buyers.

Why Are EV Loans Different?

• Low interest rates: Interest rates for EV loans are 0.5%–1% lower than regular car loans as offered by many banks.
• Flexible payback plans: Repayment periods can go up to 84 months which reduces your monthly EMI and eases the financial burden.
• Big loan amounts: EV loans typically cover almost the entire cost of the vehicle and include accessories such as home charging stations.
• Green Benefits: Lenders like to add-on discounts and special offers when customers purchase green vehicles.

Why Consider an EV Loan?

Let's be real. Electric cars are more expensive upfront than their diesel or petrol relatives. The good news? EV financing plans are set up to help you cover that extra cost. Here's how an EV loan makes financial sense:

• Affordable: Less interest on electric vehicle loans means you pay less overall.
• Tax benefits: You can claim up to ₹1.5 lakh per year on the interest paid for your EV loan under Section 80EEB of the Income Tax Act.
• Promote Sustainability: You become a conscious contributor to a cleaner and greener future by choosing a green car loan.

Interest on Electric Vehicle Loans

Let’s us take a quick look at the current interest rates (as of June 2025):

For electric vehicles and SUVs, the interest rates are usually between 8.5% and 9.5%. Electric two-wheelers can carry higher interest rates, between 18% and 22%.

Tax Benefits on Electric Vehicle Loans

Here's a true incentive: According to the Income Tax Act, Section 80EEB, you can avail a tax deduction of up to ₹1.5 lakh annually on the interest on your EV loan. This is applicable to loans sanctioned from April 1, 2019, to March 31, 2023, and stays valid as long as your loan is ongoing.

Fast facts:

• This benefit is available to individuals (and not businesses).
• Eligible for electric vehicles as well as electric bikes.
• You have to borrow the loan from a well-known bank.

How to Get an EV Loan?

Getting an EV car loan is simpler than you imagine. Here is what you need to have:

• You must be 18 years or older.
• You should have a regular source of income (salaried or self-employed).
• Keep documents like ID proof, address proof, income proof, and vehicle details ready.
• Maintain a good credit score (700+).

How Does an EV Loan Work?

EV loans are simple and user-friendly. Here’s how the process usually goes:

1. You pick the EV of your choice. It can be your dream electric car, bike, or scooter.

2. You then apply for an EV loan by submitting your electric vehicle application online or offline.

3. Lenders then check your eligibility, credit score, documents, and other details and then verify your application.

4. Once approved, the loan amount is paid directly to the dealer. You drive away in your new EV.

5. You pay the loan back in simple monthly installments over your chosen tenure.

Let’s say you want to buy an electric car worth ₹12 lakh.

• Total amount: ₹10 lakh
• Rate of Interest: 8.5% p.a.
• Repayment Tenure: 5 years

Your EMI would be roughly ₹20,500 a month. In five years, you'd pay approximately ₹2.3 lakh in interest. But with Section 80EEB, you can deduct up to ₹1.5 lakh annually as a tax deduction from that interest — making your EV even cheaper.

What Can You Finance with an EV Loan?

EV loans are not limited to cars. You can borrow for:

• Electric cars like hatchbacks, sedans, SUVs
• Electric bikes and scooters
• Charging stations (in certain scenarios)
• Insurance and accessories (subject to lender)

Final Words

Electric vehicles are going to define the mobility landscape of India. With government support, lower operating costs, and increased green concern, people are increasingly looking to transition to EVs. Though EV finance and green car loans are bringing the price within reach, there's a responsibility to look around and compare offers, verify whether you qualify for an electric vehicle loan, and know the tax advantages prior to applying. Don't rush, be sure to look over your choices, and select the EV finance option that works best for you and your budget. The future of cleaner, greener travel awaits and with the proper facts, you can feel secure in your choice.

Also Read:
- Why an EV Loan is the Future of Smart Borrowing
- How Green Finance Can Be a Sustainable Choice for Your Home