As electric vehicles (EVs) become increasingly popular, many drivers are considering making the switch to eco-friendly transportation. However, one of the biggest hurdles for potential EV owners is figuring out how to finance their new vehicle. When it comes to financing an electric car, you typically have two options: loans and leases. Each option has its own set of advantages and drawbacks, and the best choice depends on your financial situation, driving habits, and long-term goals.
In this article, we’ll break down the pros and cons of financing an electric car through a loan versus a lease to help you make an informed decision. Whether you’re looking to own your EV for the long haul or prefer to drive a new car every few years, we’ll help you determine which financing option suits your needs.
1. Financing with a Loan: Own Your EV
A car loan is a traditional way to finance a vehicle purchase. When you finance an electric car with a loan, you borrow the amount needed to buy the car and agree to pay it back in monthly installments, typically over a period of 36 to 72 months. Once the loan is paid off, you own the vehicle outright.
Pros of Financing with a Loan
1. Full Ownership
The most significant advantage of financing an electric car with a loan is that you own the car outright once the loan is paid off. After making your final payment, the car is yours to keep for as long as you like. This gives you the freedom to keep driving the car without worrying about any additional payments or mileage restrictions.
- Example: If you finance a Tesla Model 3, you’ll own the car after the loan term ends, allowing you to drive it for years without monthly payments.
2. No Mileage Limits
Unlike leasing, which often comes with mileage restrictions, there are no mileage limits when you finance an electric car with a loan. If you drive long distances regularly or take road trips, you won’t have to worry about exceeding your mileage allowance, which can lead to costly penalties at the end of the lease term.
- Tip: If you plan to keep your EV for a long time and drive it extensively, financing with a loan might be the more economical option.
3. Customization Flexibility
When you own your electric vehicle, you have the flexibility to modify and customize it as you see fit. Want to upgrade the wheels, add aftermarket accessories, or make other modifications? With a loan, you can do all of this without worrying about violating lease terms.
4. Long-Term Cost Savings
Although the upfront cost of purchasing an electric car with a loan can be higher, once you’ve paid off the loan, you no longer have to make monthly payments. This can be a significant cost-saving over the long term, especially if you keep the car for several years.
Cons of Financing with a Loan
1. Larger Monthly Payments
One of the downsides of financing with a loan is that monthly payments are typically higher than lease payments. This is because you’re paying off the entire value of the car, including interest, rather than just the depreciation over the term of the loan.
- Example: If you’re financing a Chevrolet Bolt EV, your monthly payments might be higher compared to leasing the same vehicle, which could impact your monthly budget.
2. Depreciation
When you buy a car with a loan, it starts to depreciate the moment you drive it off the lot. While EVs tend to hold their value better than traditional gasoline cars, you’ll still lose money on depreciation. If you decide to sell your car in the future, you may not get back what you paid for it, especially if the car’s value has dropped significantly.
- Tip: If you plan to sell your car after a few years, make sure to research the resale value of the EV model you’re interested in.
3. Higher Upfront Costs
In most cases, when you finance an EV with a loan, you’ll need to make a down payment, which can be significant. This down payment reduces your loan amount, but it may be difficult for some buyers to save enough money for a large down payment.
2. Financing with a Lease: Drive a New EV Every Few Years
Leasing an electric car is similar to renting it for a set period, typically 24 to 36 months. During the lease term, you make monthly payments based on the car’s depreciation rather than the full value of the car. At the end of the lease, you return the car to the dealership and have the option to either lease another car or purchase the vehicle outright.
Pros of Leasing an Electric Car
1. Lower Monthly Payments
Leasing typically results in lower monthly payments compared to financing with a loan. Since you’re only paying for the car’s depreciation during the lease term and not the full purchase price, your monthly payments are usually much more affordable.
- Example: Leasing a Hyundai Kona Electric could result in a monthly payment that is significantly lower than financing the same vehicle.
2. Drive a New EV Every Few Years
One of the main benefits of leasing is the ability to drive a new car every few years. When the lease term ends, you can simply return the car and lease a new, updated model. This is especially appealing if you like having the latest technology, features, and improved battery range available in newer models.
- Tip: Leasing is ideal for people who want to upgrade to a new EV every few years and don’t want to deal with the hassle of selling or trading in an old vehicle.
3. Lower Maintenance Costs
Since lease terms are typically short (2 to 3 years), most leased vehicles are still under warranty for the duration of the lease. This means you’ll likely have fewer maintenance and repair costs, especially for newer EVs with fewer miles on them. You may only need to cover routine maintenance like tire rotations and battery checks.
4. No Worry About Depreciation
When you lease a car, you don’t have to worry about the car’s depreciation because you won’t own the car. Once the lease term ends, you can simply return the car and walk away, avoiding any potential losses in resale value.
Cons of Leasing an Electric Car
1. Mileage Restrictions
Leasing agreements often come with strict mileage limits, typically ranging from 10,000 to 15,000 miles per year. If you exceed the mileage limit, you may incur costly penalties at the end of the lease term.
- Tip: If you drive long distances regularly or plan to take several road trips, leasing may not be the best option due to the mileage limits.
2. No Ownership
The most significant disadvantage of leasing is that you don’t own the vehicle at the end of the lease. Once the lease term is over, you must either return the car or purchase it for its residual value, which can be higher than its market value.
3. Customization Restrictions
Leasing agreements often prohibit modifications to the car. If you’re someone who likes to customize your vehicle with aftermarket parts or changes, leasing might not be the right choice. Any modifications could result in penalties when you return the vehicle.
4. Potential for Higher Long-Term Costs
While leasing offers lower monthly payments, it may not be the most cost-effective option in the long run. If you continually lease cars every few years, you’ll always have a car payment and won’t build equity in the vehicle. Over time, this can result in higher costs compared to purchasing a car with a loan and keeping it for many years.
3. Which Option is Right for You?
Consider a Loan If:
- You want to own your EV outright after paying off the loan.
- You plan to keep the car for a long time (5+ years).
- You drive a lot and need a car with no mileage limits.
- You prefer the flexibility to customize your vehicle.
Consider a Lease If:
- You want lower monthly payments and can handle potential mileage limits.
- You like having a new car every few years with the latest technology.
- You want to avoid worrying about depreciation or selling the car.
- You don’t drive extensively and prefer a vehicle under warranty.
Frequently Asked Questions (FAQs)
1. Is leasing or financing an electric vehicle cheaper?
Leasing generally has lower monthly payments than financing, but financing allows you to eventually own the car, whereas leasing means you’ll always have car payments.
2. Can I buy a car after leasing it?
Yes, many lease agreements give you the option to purchase the car at the end of the lease term for a predetermined price, known as the residual value.
3. Are there mileage limits with a car loan?
No, when you finance a car with a loan, you own it outright and can drive as much as you want without any mileage restrictions.
4. Can I modify a leased electric car?
Leased cars usually can’t be modified without risking penalties at the end of the lease. Customizations are typically only allowed if specified in the lease agreement.
5. How long does the financing term for an electric vehicle typically last?
Financing terms for an electric vehicle usually range from 36 to 72 months, depending on the lender and the buyer’s preferences.