The electric vehicle market has grown tremendously over the past year, with EVs and hybrids accounting for 4.5 and 6.6 percent, respectively, of new registrations from January through June 2022, according to a 2022 market trend report from Experian. But even as options grow beyond Teslas and Toyotas, it can be daunting to dive into a brand-new vehicle type at first. And with an average price of over $66,000 at stake for an electric vehicle, the choice is fraught — financially and logically. If you fall into a category of curiosity rather than confidence, leasing an EV can help you decide if an eco-friendly ride is right for you, while buying is best for drivers who are willing to commit.
Leasing versus buying an EV
Leasing an electric car can give you hands-on experience with an otherwise expensive vehicle, but can cost more in the long run if you exceed the restrictions or buy it at the end of the lease.
Is it better to lease or buy an electric car?
When it comes to whether you should lease or buy your next vehicle, determining which route is best for you and your wallet is fairly easy.
- If you plan on replacing your vehicle every few years and can handle mileage limitations, leasing can be great.
- If you want the freedom of ownership, buying is the way to go.
But the world of electric vehicles is still in its infancy, even with electric vehicle sales increasing by 40 percent annually. So signing off long-term ownership for a vehicle that is seemingly new to the market can feel risky. To determine which one is right for you, consider the pros and cons of each option.
Lease an electric car
Benefits of leasing an EV
- Vehicle Warranty
- Lower monthly payment
- Latest technical features
Disadvantages of leasing an EV
- Faster vehicle depreciation
- Inability to sell vehicle
- Vehicle Restrictions
Benefits of leasing an electric car
The benefits of leasing an electric car come down to extra protection through an extended vehicle warranty – meaning less trip to the mechanic – lower monthly costs and access to the latest technology.
In general, car lease contracts last for 24 or 36 months, during which time your vehicle can experience technical problems. When it comes to EV maintenance, the need for a new battery is the most common problem you may encounter. But with leasing, your vehicle is likely still under warranty, saving you thousands of dollars.
Lower monthly payment
Leasing a car allows you to drive the car for a set amount of time, paying each month. It often costs less per month than a car payment for the same vehicle. In addition to lower monthly fees, you’ll also spend less upfront and likely leave the lot without putting any money down.
Leasing costs less
The average monthly cost of leasing a new car in the fourth quarter of 2022 was $540 versus $667 to buy it, according to Experian.
Latest technical features
While the year-to-year model changes for conventional vehicles are not dramatic, the EV field is developing at a much faster rate. Leasing gives you the chance to be at the forefront of technology available, rather than being stuck with last year’s add-ons. For example, the Hyundai Kona received some notable upgrades from the 2021 to 2022 model, including an updated infotainment center and new driver assistance technology.
Disadvantages of leasing an electric car
While leasing an electric car can expose you to the experience of electric driving, it also has some drawbacks. Mainly the challenge of lease approval, inability to leave the lease and vehicle restrictions.
Getting approval for leasing a vehicle can prove to be much more difficult than for a car loan, especially for those with poor credit. While you may still be able to lease without a perfect credit score, it will likely mean a higher monthly payment. Consider the average credit score for drivers leasing new cars in the second quarter of 2022 – 736 – which Experian estimates is above the 729 average for a loan.
Inability to sell the vehicle
Leasing a car is not easy or cheap. So if you don’t like the vehicle you’re leasing, you’re probably stuck in the lease or paying hefty fines to end the agreement. Depending on your landlord, you may be expected to pay the residual value in addition to the remaining lease payments and fees.
When taking out a car lease, there are a few important aspects to keep in mind: mileage, maintenance and vehicle modification. If you lease your EV, you’re likely limited to driving 12,000 to 15,000 miles a year, you may have to foot the bill for maintenance, and you won’t be able to customize the vehicle.
Buy an electric car
Benefits of leasing an EV
- Full ownership
- No vehicle restrictions
- Tax incentives and credits
Disadvantages of leasing an EV
- Expensive upfront costs
- Rapidly changing technology
- Own repair costs
Advantages of buying an electric car
The main attraction of buying an electric car rather than leasing it comes down to the excitement of full ownership. You can do whatever you want with your vehicle without being limited to what the leasing company has available or worrying about fees. As an EV owner, you can also take full advantage of tax benefits and credits that would otherwise be funneled through to the lessor.
Depending on where you stand financially, buying an electric car allows you to pay off your loan at your own pace and gives you full control over your vehicle. You get a good idea of your total costs in advance instead of worrying about possible wear and tear costs that can add up at the end of a lease contract.
No vehicle restrictions
If you feel that the freedom of the public road should not be restricted, then buying an electric car may be a better option for you. This way you will not be held captive by the vehicle’s odometer and you can enjoy the freedom of the public road. In addition to unlimited driving, full ownership allows you to add all the bells and whistles that suit you to customize your vehicle.
Tax incentives and credits
When purchasing an EV, you can take advantage of a large number of financial incentives. One of these, the federal EV tax credit, can go up to $7,500 dollars. Many states also offer discounts to reduce the cost of purchasing a climate-conscious vehicle. But these incentives only apply to the owner of the vehicle, so if you were leasing, you wouldn’t benefit from it.
Disadvantages of buying an electric car
The EV space has expanded and more budget-friendly options are popping up, but these vehicles still tend to carry a higher price tag than a conventional option. Higher prices are also accompanied by rapidly changing technology and higher maintenance costs.
Expensive upfront costs
Electric vehicles are generally much more expensive than conventional vehicles, averaging $66,997 according to data from Kelley Blue Book June 2022. EV drivers also tend to have nearly identical credit profiles to those who finance luxury cars and pay large down payments, according to a TransUnion Report. This can make approval more challenging for borrowers with less than perfect credit scores.
Shop and save
Borrowing money for an electric vehicle requires the same approach as saving money on a conventional loan: look around, apply for a loan in advance and don’t be afraid to walk away.
Rapidly changing technology
Electric car innovation is moving fast, and this is especially true as older brands, such as Ford with the Mustang Mach-E and Chevrolet’s Bolt, are entering the space. But this growth also means you’re stuck with currently available technology in the vehicle you buy. While progress may seem small to the naked eye, if flashy technology serves as a main attraction, consider leasing to stay on top of trends.
Own repair costs
As with any vehicle in your ownership, you must pay for the necessary maintenance that comes with ownership. But when it comes to an EV, this maintenance can be much more expensive than the typical trips to the mechanic. While the battery component warranty will likely extend five to 10 years, EVs must be replaced for other expensive repairs such as screens and advanced system updates.
it comes down to
It’s best to approach the issue of leasing versus buying an EV the same way you would when buying a conventional car. For some, the benefits of the latest technology available may outweigh the lack of full ownership – while for others it makes more sense to get behind the wheel of a vehicle with confidence and incentive.
If you decide to buy an electric car, do your research to understand the additional costs associated with ownership and take advantage of green car loans. Leasing an EV, on the other hand, requires the same attention as normal. Check out a few offers and understand the entire contract before entering into a lease.