The financial burden of vehicle ownership, from the first purchase to filling up at the gas station, reached record highs for drivers this summer. Gas is average $4.44 a gallon as of July 21, according to AAA. On top of the high petrol prices, drivers paid on average almost . in June 2022 $700 per month for financing new vehicles, according to JD Power.
With high costs to fill and finance, plus the ever-present concerns about climate issues, many drivers crave another solution. But are electric vehicles (EVs) the answer motorists are looking for? EV sales have risen in recent years and TransUnion predicts EV market share will reach 40 percent by 2031 — a 35 percent jump from late 2021. But the high initial cost of an electric vehicle may not be right for every driver.
Is electric buying something for me?
The choice to buy electric is a very personal one and should be approached with the same care as deciding the make and model of your next car. For some, the convenience of never having to go to a gas station makes the high price tag worth it.
Electric cars have progressed so far that they are now on the podium alongside high-end options. “From a purely consumer perspective, buying an electric car will be very positive,” said Brian Moody, executive editor at Autotrader. “In addition, the driving experience of electric cars is very rewarding. Acceleration is faster and electric cars have cool features like the ability to warm up or cool down your car’s interior before hitting the road.”
And if it’s not a full EV, a hybrid or plug-in can be more fuel efficient than traditional gas models while also being kinder to your wallet than EV. These usually have a lower price tag and, as Moody explains, “function like an electric car on a daily basis and only use gas for long trips.” This makes them an option for drivers interested in electric driving who are not yet ready to fully commit.
The electric car industry has seen a lot of innovation in the past two years and will continue to grow. This means that while the initial cost may be higher, more options will become available as older brands enter the electric car market.
The US car market is shifting to electric
With record high car and gas prices, EV sales have made up for lost inventory in the traditional market. EVs and hybrids accounted for 4.64 percent and 7.18 percent of new vehicle registrations, respectively, according to a Q1 of 2022 report by Experian. This growing interest in electric vehicles has led to improvements in available financing, including green car loans and tax credits.
This expanded market is one of the main reasons to consider buying an electric car now, just as you would a traditional car. While brands like Tesla used to dominated the market, TransUnion predicts that the high-tech brand will fall below 20 percent of the market share by 2025 due to the number of new and more mainstream brands entering the space.
Moody shares a similar perspective when it comes to vehicle availability. “In the past there were only a handful of very small or very expensive electric cars. While EVs as a whole are more expensive, there are individual models that are more reasonably priced. For example, the Kia EV6 and Chevrolet Bolt.”
EV drivers share nearly identical credit profiles to those in luxury driving
Satyan Merchant, senior vice president and automotive business leader at TransUnion, has seen an increasing popularity in EV financing and a subsequent impact on the overall auto financing industry. TransUnion’s 2022 survey reported that of the 33 million consumers between 2019 and 2021 who developed new EVs and internal combustion engine (ICE) vehicles, most EV borrowers shared nearly identical high credit profiles as those who drove luxury vehicles.
Those driving regular EVs had an average credit score of 775 and fell into the former category, according to Experian. They also had an average APR of 2.8 percent. This is lower than the average APR of 3.56 percent for all new cars for borrowers in the first category. The competitive average APR of EVs is mainly due to the high credit profiles of these drivers and the addition of high down payments.
The survey also found that motorists were more likely to start their car purchase process online. More than a third even researched car makes and models online.
Merchant explains: “Our research clearly shows that electric vehicle buyers have excellent credit risk profiles, but this group also has several preferences, including a greater interest in seeking vehicle financing through digital means.”
This increased interest is likely to be reflected in new EV financing options coupled with an expansion of available vehicles expected in the coming years.
Options for eco-friendly financing are expanding
This growing electric vehicle market has also led to improvements in financing. While it’s true that drivers can use direct or indirect loans for their electric vehicles, EV-specific lenders are gaining popularity and offering drivers a customized experience.
Tenet CEO Alex Liegl comments on the company’s work on EV financing and its goal of making climate investment an easy decision. The Tenet approach “gives customers the freedom to manage investment costs upfront and save cash down payments for other expenses,” Liegl says.
In addition, there is a deferral option that shifts a quarter of the purchase price to one final payment at the end of the financing term. This allows for lower monthly payments and a streamlined financing experience – but a large amount can be owed at the end.
The goal, Liegl says, is to “help customers fully electrify their lives by making sustainable home upgrades more affordable, including solar installation, battery backup, smart appliances, EV charging, and more.”
Other companies, such as EV life, serve as a marketplace for loan prequalification directly related to EV incentives and green loans available in your state. According to the website, drivers can save an average of $180 per month on their monthly EV loans.
Can EVs have a lower lifetime cost?
The good feelings that come with driving a vehicle that’s better for the environment isn’t the only reason people switch to EV; there is also the opportunity to save money. While it is true that gas is not the only expense when driving, electric driving can generally be cheaper in some cases.
In a 2020 study, drivers of electric vehicles saved on average 50 percent on maintenance and repairs over the life of the property, according to Consumer Reports. This is mainly due to the differences in general maintenance associated with EVs. These vehicles do not require an oil change and have a simpler drivetrain. Those driving BEV (battery electric vehicles) and PHEV (plug-in hybrid vehicles) spent just 3 cents per mile over the vehicle’s life, compared to 6 cents per mile for ICE vehicles.
But electric driving is not entirely rosy. CNET, a Red Ventures company, reported on a 2021 study by We Predict that found: less favorable data on repair costs. While it’s true that drivers can avoid the extra expense associated with some maintenance, such as oil changes and basic inspections, EV parts are much more expensive when it comes time for repairs.
This means that longer maintenance hours, combined with more expensive replacement parts, can make electric driving just as or more expensive than driving on gas. In addition, electric cars are depreciating faster than the traditional gas option due to the speed of technological progress.
How to finance an electric vehicle?
The financing process of an electric vehicle is quite similar to that of a traditional gas-powered car. It’s important to follow the same steps as you normally would, compare rates and available terms, and understand the weight of your credit score and history.
As mentioned, electric driving also has federal benefits that you traditionally wouldn’t have access to. One is EV Tax Credit, a $7,500 incentive that applies to electric and plug-in vehicles. Not every state offers this credit, so it’s important to check your qualifications before submitting your necessary paperwork.
Questions to ask yourself before buying an electric vehicle
Owning and driving an electric car brings with it some additional needs that you may not have had to deal with in the past. Consider these questions.
1. What is the vehicle range?
It is important to check the distance your vehicle can travel for you, both for your normal commute and for your travel habits. Energy.gov Reports Average Range for 2020 Model Year Vehicles 250 miles exceeded. Fortunately, drivers are likely to have less “range anxiety” as vehicles catch up with available technology. But it’s wise to check your needs by taking into account your typical commute and expected leisure activities.
2. Do I have to lease before buying an electric car?
“Leasing an electric car can be a good way to test owning an electric car,” Moody says. Leasing is usually cheaper on a monthly basis and usually includes a warranty. If you’re not sure about electric driving, consider leasing one to see if you like the feel and experience.
3. Can I access car chargers in my area?
Although the Electric Vehicle Council found that between: 70 and 80 percent of EV drivers charge at home, many motorists do not have the luxury of installing a charger at home. Charging at home can be more expensive in the long run than just going to the gas station. So for many, to be a successful and cost-effective purchase, you need to have access to chargers – at home or in your area.
According to Moody, “If you can’t charge at home, the experience isn’t that great.” But if you’re okay with going to nearby charging stations just like you would fill up at the gas station, check it out PlugSharethat maps nearby charging stations.
Consider an EV when shopping for your next vehicle
Like any other luxury vehicle, EVs can incur higher upfront costs, and drivers with a strong credit profile will likely only benefit from lower interest rates. But as the industry grows and more mid-tier options appear, more drivers can reasonably consider an electric option.
If you’re one of the 36 percent of Americans considering electric, Moody recommends aiming for the sweet spot by buying lightly used — something in the three to five year range — to get the benefit of both a lower price as a good amount of warranty coverage.