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In 2024, more new electric vehicle (EV) buyers are deciding to lease rather than buy: 46.6% versus 36.8%, according to data from Experian's State of the Automotive Finance Market report from September 2024.
The reasons consumers are preferring to lease could be many. For instance, leased EVs have a lower monthly payment on average, Experian found. The average monthly EV lease payment was $88 less than the average monthly EV loan payment across all models. Leasing also keeps the commitment short and sweet, so lessees worry less about their cars going out of date or losing value. Both lessees and buyers can take advantage of federal EV tax credits of up to $7,500.
Buying definitely has its advantages, too, however. Though used EV values have taken a hit in 2024, buyers still have the chance to build equity as they pay down loan balances. That equity can provide down payment money for their next vehicle. Below are some of the major pros and cons to leasing or buying an EV.
How Consumers Are Financing EV Purchases
Leasing an Electric Vehicle
Leasing a vehicle is similar to renting one. A lease is a contract that entitles you to use a vehicle for a specified period of time at a set monthly cost. The cost of a lease is based in part on the amount the vehicle is expected to depreciate, or lose value, during the lease term. For example, if you lease a $50,000 car that's projected to be worth $35,000 at the end of a three-year lease, your approximate lease cost would be $15,000 divided by 36 (months) = $416.67, plus fees.
Benefits of Leasing an Electric Vehicle
If you choose to lease, here are a few potential benefits that can save you money.
- Lower financing costs: Leasing a vehicle typically requires a lower down payment and lower monthly payments than purchasing. Over a typical three-year lease, an $88 average monthly savings on lease payments (versus loan payments) adds up to $3,168.
- Minimal repair costs: When you lease a new car, you drive it during the first few (hopefully repair-free) years of its life. Any repairs that do crop up are likely to be covered under a manufacturer's warranty.
- Federal tax credit of $7,500: Under the 2022 Inflation Reduction Act, vehicle leasing companies can claim up to $7,500 in federal tax credits when they lease out an EV. Good news: EV makes and models that don't qualify for the federal tax credit on new EV purchases may qualify for this one. Bad news: The tax credit goes to the leasing company, which may or may not pass the full savings on to you.
Drawbacks of Leasing an Electric Vehicle
Leasing a vehicle might save you money on monthly payments and repairs, but what are the downsides? Compared to buying, leasing an EV may have these potential pitfalls:
- Need to refinance: At the end of your lease term, you'll either return your car to the dealer or, if your contract allows it, purchase the car at a predetermined price. Either way, you'll need to finance your buy-out or negotiate a lease (or loan) on a new car in just a few years. If you love your car, you may not be ready to part with it.
- Mileage restrictions: Most lease contracts limit your annual mileage to between 10,000 and 15,000 per year. If you go over your mileage limit, you may be charged a per-mile fee.
- Additional fees: You may be charged additional fees if you decide to turn your vehicle in early, or if the vehicle shows excessive wear and tear.
Who Leasing an Electric Vehicle Is Best For
Thinking about leasing a new EV? This option may work best for you if:
- You want to keep your down payment and monthly payment as low as possible.
- You can negotiate a lease that incorporates savings from the federal tax credit.
- You typically drive your car 15,000 miles per year or less.
- You like driving a new car.
- You don't mind going through the car-buying or car-leasing process every few years.
- You aren't counting on building equity or using a trade-in when your lease ends.
Buying an Electric Vehicle
Securing a loan to buy a new EV may require a greater investment than leasing, but the payoff is ownership. As an EV owner, you aren't bound to mileage restrictions or lease terms. Your EV is an asset you can keep or sell.
Benefits of Buying an Electric Vehicle
When you purchase an EV, you end up with something to show for your investment. Although you may pay out more each month than you would on a lease, you'll have these benefits:
- Ownership: You own your vehicle. You decide how many miles you want to drive it, how you want to modify it and how long you want to keep it.
- Finite monthly payments: Your loan term will end, but your relationship with your car doesn't have to end with it. If you hold on to your car after your loan term is up, you can have a car with no monthly payments. Lease payments tend to be continuous from one car to the next.
- Equity: When you sell your car or trade it in, you'll recoup some of the money you spent to purchase it. That gives a bit of purpose to larger monthly payments. It also helps when you need a down payment on your next vehicle.
Drawbacks of Buying an Electric Vehicle
On the other hand, higher costs are higher costs. If you're thinking about buying a new EV, don't forget to factor in these potential drawbacks:
- Higher financing costs: When you finance a new EV with a loan, you can expect a higher monthly payment than you would have with a lease. A loan may also require a larger down payment.
- Potential loss of value: In 2024, some used EV models have sharply declined in value. Lower used car values reduce the amount of money you get for a trade-in, and can even result in negative equity, where you owe additional money when you trade in your car.
- Higher repair costs: EVs can actually cost less to maintain than conventional cars because they have fewer working parts and don't need regular services like oil changes. However, if your EV is in an accident and needs repair, expensive parts and specialized repair services may be pricey. And battery replacement (typically after the 10-year mark) can cost as much as $20,000. Purchasing an EV can mean owning it for longer than a lease, increasing the chances you'll have a major repair.
- Federal tax credit is limited: The list of vehicles that qualify for either a $3,750 or $7,500 tax credit on the purchase of a new EV has grown in 2024, but it's still relatively short. You'll also have to meet income and price limits.
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Who Buying an Electric Vehicle Is Best For
Buying an EV might work best for you under these circumstances:
- You have the down payment and monthly budget to cover a purchase.
- You want to use your car's trade-in value as a down payment on the next vehicle.
- You tend to keep cars for longer than a few years.
- You are likely to drive 15,000 miles or more per year.
- You don't want restrictions on mileage or modifications.
- Your vehicle qualifies for a federal tax credit, or you've decided you don't need the credit.
Leasing vs. Buying an Electric Vehicle Overview
Still on the fence? To some extent, choosing the right EV and financing may come down to the individual offer that works best for you. For a quick overview of leasing versus buying, have a look at the comparison below.
| Leasing | Buying | |
|---|---|---|
| Ownership | Leasing company owns the vehicle | You own the vehicle |
| Average credit score | 751* | 745* |
| Average monthly payment (2024 top 10 models) | $532* | $783* |
| Available tax credit | Up to $7,500 credited to the leasing company; savings may be passed on to you | Up to $7,500 if your vehicle is on the (short) list of approved makes and models, payable to you or the dealer, who can apply the credit to your purchase |
*Source: Experian data as of Q2 2024
The Bottom Line
Whether you lease or finance your new EV, good credit can help you secure a great deal. Lenders and leasing companies consider your credit scores and the credit history shown on your credit reports when deciding whether to approve your application, and whether to offer you the best rates and terms.
You can check your credit report and FICO® Score☉ for free from Experian, so you can size up your own credit before you go shopping for an EV—and EV financing. You may decide you need to polish up your credit for a few months before shopping for your new EV. Or, you may be ready to get the loan or lease you want, just as you (and your credit) are.