Biden’s Clean Vehicle Tax Credit Can Save You Money on Your Auto Loan

Big changes are coming to the electric vehicle tax credit in 2023.

The Inflation Reduction Act, signed into law by President Joe Biden this summer, renews a tax credit of up to $7,500 for new EVs through 2032 and introduces a credit of up to $4,000 for used EVs. The law also requires final assembly of your EV in North America, and the vehicle’s battery must meet certain conditions to qualify. These requirements will significantly reduce the number of vehicles that are eligible for the EV tax credit.

At the same time, the act removes a provision that caps the number of tax-credit-eligible vehicles a manufacturer can sell at 200,000. This frees up the restriction on high-volume American automakers such as Tesla, which had hit the manufacturer cap several years ago.

When it comes to auto loans, the biggest update for car buyers is that the tax credit will be available at the point of sale in 2024. Allowing the dealer to collect the credit for the buyer will effectively lower the sticker price – meaning that shoppers who are looking at financing their purchase will need to borrow less money.

Here’s what to know if you’re thinking about using the revamped tax credit to buy an EV.

Instead of claiming the EV credit on tax returns, consumers will soon be able to transfer it to a dealership and use it to reduce the price of a vehicle. For buyers who plan to finance their EV purchase, this translates to meaningful interest savings.

Here’s an example: A car buyer taking out a five-year, $40,000 auto loan at a 9% interest rate can expect to pay $9,820 in financing charges over the life of the loan. But if you can reduce the sticker price and loan amount by $7,500, the total interest paid would be $7,979. This provides an additional $1,841 in savings.

A smaller loan amount also means lower monthly payments for auto loan borrowers. Using the same figures in the example above, a car buyer could save $155 on monthly payments by claiming the EV tax credit at the point of sale.

But remember, this new way of using the EV tax credit won’t begin until 2024. If you can, wait a little longer to buy an EV, and use a car payment calculator to estimate your potential savings.

Although the EV tax credit may be easier to claim in the coming years, buyers could have a harder time finding a vehicle that qualifies for the credit. The Inflation Reduction Act established more restrictive eligibility requirements for claiming the clean vehicle credit going forward:

Here’s a list of some popular 2022 vehicles that could qualify for the updated EV tax credit:

You can find a full list of eligible vehicles on the Department of Energy website.