In light of the rise of electric vehicles, the eternal debate of leasing vs buying doesn't end, and has just found a whole new arena.
And as we approach the 2030 ban on the sale of new petrol or diesel vehicle models, electric cars will soon be all over the place, so you'll have to decide how you want to finance one.
We'll be telling you about why leasing is the best way.
What is Leasing?
In case you didn't know, it's the leasing of a vehicle for a fixed period of time, during which the payments stay the same throughout the term. Think of it like a long-term car rental where you are committed to monthly payments over a course of, say, 12 or 36 months.
Leasing an Electric Car - The Costs
As an example, and using the same search criteria (personal lease, three years term, initial rental 'deposit' of six months, and 10,000 miles per year), a large electric SUV like the KIA Niro EV could cost between £325 and £450 a month, whilst a standard KIA Niro is likely to cost between £275 and £350 a month.
Whilst the electric car might be a little more expensive on the face of it, you’ll benefit from major tax advantages, lower running costs and the positive environmental impact of driving a zero-emissions vehicle.
For company car drivers, the benefit-in-kind (BIK) tax rate on electric vehicles stands at just 2%. That means a high-end electric car will cost less in company car tax than a tiny city petrol car. And there's several more electric car cost advantages including exemption from the London Congestion Charge and Ultra Low Emission Zone (ULEZ) fee, not to mention free parking and charging in some UK towns and cities and certain parts of London. Supermarkets are also supporting the electric cause, with free EV charging points offered across some of the larger stores, so you can charge whilst on the go.
Buying via a Personal Contract Purchase (PCP)
The basic idea behind Personal Contract Purchase is that you only pay for the car’s predicted depreciation over the length of the contract, and you have the choice to own it or hand it back at the end of the contract. In other words, that's the difference between the list price of the electric vehicle and its expected value at the end of your PCP agreement, which could be up to four years.
The problem with Personal Contract Purchase is that leasing an electric car on average works out cheaper than Personal Contract Purchase (and remember, PCP includes new and used cars, whereas lease cars are almost exclusively new). And if you PCP a new electric car, it will lose around 40 percent of its value over the first three years. So it's going to be worth a lot less when you finally own it.
Buying Via a HP - Hire Purchase
Before the boom in popularity of PCP, Hire Purchase (HP) deals were the way to go. Like PCP, this basically involves spreading the cost of a new car over a fixed period, typically 12 months to five years. But unlike PCP, you WILL own the car at the end of the contract.
However, with a HP, an EV might not be the best option for you. Because battery technology advances so fast, your EV will be slightly outdated by the time you own it. This means that your EV's trade-in value will be reduced. And like PCP, your monthly payments will be higher.
EV Via Leasing
Leasing an electric car is actually the most popular option for financing one at the moment. Electric car leasing is definitely the most affordable form of financing an EV, not least because you’re essentially renting the car from the leasing company. You have the advantage of getting an electric car in good shape, and for fewer costs.
When buying, you get less out of it, as the battery and range decreases over the years, whereas with leasing you simply hand the car back without worrying about its value. As long as you can afford the monthly payments, you're good to go.
Be aware though that leasing also has fairly stringent terms attached, meaning you could be fined for early cancellation of the agreement. And that applies with excess mileage charges as well, which we'll soon cover in more detail.
Manufacturers guarantee to what extent the battery will have degraded by the end of the warranty period. For example, the warranty might specify a maximum of 30% battery degradation after 6 years. That means after 6 years the battery will still be able to be charged up to 70% of its rated capacity, which is quite a loss.
But not with leasing . . .
But Isn't Leasing Expensive Considering You Don't Own the Car?
Understandably, a great number of drivers want to feel a sense of ownership and of “something worth showing”. Nobody wants to be paying money which goes out but never comes back.
The problem is, buying an electric car outright isn't like a house. You almost always lose money with a car.
True, you could own an electric car through hire purchase or PCP, but you could have more money with leasing.
Maintenance and Repair Costs
With a lease deal, your electric car will be covered under the manufacturer's warranty, meaning that most mechanical faults will be fixed without personal cost. Road tax, MOT and full breakdown cover are also included in your lease, but scheduled maintenance and servicing are not.
That means you'll need to budget for those two, maybe looking at taking out a pre-paid plan for the duration of your lease in order to spread out the servicing cost. The good news is that electric car maintenance tends to be cheaper as there's fewer mechanical parts that can go wrong.
Mileage Penalties
You'll have to agree to a certain amount of yearly miles at the start of your contract which will help determine the monthly lease payments.
If you exceed the mileage throughout the term, you will incur penalties at the end of the contract (usually charged by a certain amount of pence per mile) or going over the agreed mileage limit. So it may be best overestimating your mileage at the start of the contract.
But it's worth noting that the mileage limit can be changed AT ANY POINT during the agreement.
Happy days.
What About Excess Charges?
You don't have too much to worry about here.
Most cars undergo some amount of 'natural' fair wear and tear overtime, and electric ones are no different. So unless there's some noticeable damage or performance issues when you hand the car back, you won't have to pay a penny in excess damage charges. After all, there's a clear difference between neglect and fair wear and tear, which is the natural deterioration that occurs to a vehicle.
You obviously don't own a lease car, but you're expected to look after it as if you do, so it will be inspected for any damage once you return it. Leasing providers and companies take into account fair wear and tear for both personal and business customers. And for further peace of mind, you can read a full checklist of steps to take before returning an electric lease car.
Electric lease vehicles don't usually have maintenance included, so it's your responsibility to make sure the vehicle is fully maintained every year and that any damage is repaired during the lifetime of the contract.
Costs Now vs 2030
Compared to petrol and diesel-powered cars, running costs for electric cars are fairly low. And you can also still take advantage of Government-run schemes to help with the cost of electric cars, such as OLEV.
Because electric cars will be more common by 2030 (due to the upcoming ban on the sale of new petrol and diesel-fuelled vehicles), these Government incentives won't be around forever. We can't predict the future, but it's likely they'll eventually be scrapped. So now is the best time to cash in!
Why Should I Lease an Electric Car for Business?
If you're using an electric vehicle for business, you'll benefit from the same perks that personal customers will:
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Lower running and maintenance costs
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Lower company carbon emissions
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Improved company reputation, potentially leading to more clients, investment, etc
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Lowest BIK rates and company car tax on electric cars
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Workplace Charging Scheme grant for electric charger installation
Leasing EVs Pros and Cons
Pros
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Switch to a brand new car every couple of years
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Can opt for no deposit
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Delivery straight to your door
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No depreciation worries
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Full manufacturer's warranty
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Fixed, affordable monthly payments
Cons
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Mileage limits and penalties
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Excess damage/wear and tear costs
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Early termination penalties
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Stringent credit process
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No option to purchase
So, Is An EV lease the Best Way to Go?
Generally yes, but it all depends on your circumstances. Which may be a cliché, but it's a cliché because it's true.
Electric car leasing is by no means the one 'perfect' solution that solves everything, but if you want to drive away a brand new car for an affordable price and aren't too concerned about owning a vehicle, then it's for sure the way to go.
It's also great if you want to test out a new EV every couple of years and continuously take advantage of the latest technology, WITHOUT the hassle of having to sell on the vehicle.
Summary
Although it might not suit every individual circumstance, leasing a brand new electric car is still generally the best option when it comes to how to finance it. We hope you'll make the switch not only to an electric car, but to leasing as well! Just make sure you do your homework before you sign that lease agreement.
If you’re not totally sure what model to go for, you can always take a general look through a whole variety of electric vehicles on the market.
Happy leasing.