Electric Car Leasing vs Buying: What’s the best way to finance your EV?
Switching to an electric car is a significant decision and one of the best ways to lower your carbon footprint, but how you get into one matters. There are several ways to start driving electric with the two most popular being: leasing or buying. Both options have their positives and negatives.
Let’s break down some of the key differences between leasing versus buying an electric car, whilst also considering how salary sacrifice fits into this.
Understanding electric car leasing
Leasing refers to a type of finance that is essentially a long-term rental of a car (in this case, an electric car). Typically, you sign a contract to a monthly fee which will give you full use of the car for a fixed time frame - usually between two and four years. Once the contract is up, you will then return the car to the leasing company.
How much does it cost to lease an electric car?
Lease prices can vary - depending on the car, length of the lease, and mileage included. However, once you have signed up for a lease, the payments are fixed so you know what you will pay each month.
Whereas, if you buy a car you have a significant upfront payment, which can mean having to compromise on the car you can get for your money.
At The Electric Car Scheme, you benefit from accessing leases on any electric car, and from a wide variety of lease providers, ensuring you can access the best lease deals in the market at any time. You can view the cars we have available by visiting our quote tool.
In addition, the tax savings available through The Electric Car Scheme means the monthly cost of the lease to you is significantly lower compared to leasing it yourself. This can tip the balance in favour of leasing rather than purchasing even an old second-hand car!
Who owns the car if you lease it?
When you lease a car, a leasing company purchases a new vehicle on your behalf, becoming its owner and registered keeper. The lease company then leases the car to you or your employer, allowing you to use it for the duration of the lease agreement. At the end of the lease term, you return the car to the lease company. However, one drawback of leasing is that you are typically not allowed to modify the car during the lease period.
Six reasons to lease your next car
There are many benefits to leasing your next electric car, here are six reasons why it’s a good idea:
Depreciation
Unlike buying a home, which often goes up in value over time, the value of a car typically decreases as the car ages and driving miles are clocked up on the car. The reduced value is called depreciation, and if you own the car, this decrease in value is effectively a cost to you. According to AA, a new car will lose around 60% of its value after its first three years at a mileage of 10,000 miles per year - brands like Mercedes and Tesla specifically suffer from this.
When leasing an electric car through salary sacrifice, the cost of depreciation is factored into the monthly payments - so you don’t risk the car reducing in value over time.
If you’re interested in learning more about depreciation, you can learn more in our blog: what is the lifespan of an electric car? We detail the types of batteries in electric cars, factors that could affect the lifespan of the battery and more.
Damage to the car
All leased cars include a warranty as the cars are new. That said, this is typically also the case if you buy a new car. There is no significant difference if you damage the car when you have a lease car or own the car. In either situation, you would be expected to pay for the cost of repairing any damage to the car.
Excess mileage
If you own the car, and drive more miles than you expected, the value of your car will typically go down. With a lease car, you would normally pay the lease companies for any excess mileage not included in the lease you agreed.
Again, there is no significant difference in costs.
Credit checks
Typically you will need to pass a credit check when you lease a car as the lease company purchasing the car for you to use, will want to be confident you will keep up car payments.
For cars leased through The Electric Car Scheme, that credit check is completed by the company, meaning employees do NOT have to go through a credit checking process - keeping it simple.
Flexibility and changing technology
Electric cars are changing quickly - for example, the range of the Nissan Leaf is currently more than 250 miles - compared to less than 100 in 2015!
The flexibility of leasing a car allows you to take advantage of the latest technology available at the time at the end of your lease. You can switch cars without having to worry about how much your car may be worth in a few years.
Early termination risk
With a lease car, if you wish to return the car before the end of the lease, you may have to pay an early termination penalty. If you own the car outright and have to sell it, you also run the risk of getting back less than what you paid for the car.
For cars leased through The Electric Car Scheme, both the employer and employee are protected from early termination fees in many circumstances through our Complete Risk Protection policy.
What are the disadvantages of leasing an electric car?
Although there are many positives to leasing an electric car, there are some downsides.
Mileage restrictions
Leasing an electric car often comes with mileage restrictions, limiting the number of miles you can drive annually without incurring additional fees. These restrictions are typically set at 10,000 to 15,000 per year (although some leases do offer higher allowances). Exceeding your agreed-upon mileage can result in charges at the end of the lease term which is far from ideal - you can avoid this by accurately estimating your driving habits beforehand.
Mileage restrictions can be a drawback for those with extensive commutes but for people who mainly use their car for town driving, this may not be a concern. Our top tip is to accurately estimate how many miles you do and use that figure to guide you.
Limited options for customisation
Leasing an electric car can mean there are limited opportunities to customise your car. The Electric Car Scheme’s quote tool allows you to choose your trim or upholstery along with your paintwork. Buyers have the freedom to modify their cars to suit their preferences whereas lessee’s are more confined to the terms outlined in the lease agreement.
This limitation may not be a concern for some drivers, but those who value individuality or specific aesthetic choices may find leasing less appealing.
Long-term cost considerations
It is essential to factor in the long-term cost considerations. Leasing offers lower monthly payments compared to buying, lessees should be mindful of potential expenses at the end of the lease term. These costs may include excess wear and tear fees, mileage overcharge fees and any additional costs for returning the vehicle in less-than-ideal condition. Lessees do not have an asset to sell or trade in at the end of the lease, potentially resulting in a continuous cycle of lease payments.
What about buying an electric car instead?
Buying a car means you own the vehicle once your payments have been made. In 2023, Go Compare analysed car-buying trends: 59.8% pay outright, 13% use PCP finance, and 5.8% lease. Note that these stats cover all cars, not just EVs, so figures may vary in the electric vehicle realm.
The cost of buying an electric car
One of the biggest barriers to more people driving electric is the initial price point, the average price of an electric car in the UK is £50,000 with prices ranging from £22,225 to £157,160. If you’re looking for a luxury EV, like a Tesla, Porsche, Audi or Mercedes will set you back £77,000 on average.
What are the benefits of buying an electric car?
You own the car
This may seem obvious, but if you buy your electric car you own it. Unlike leasing, if you buy your electric car you hold full ownership rights and have the opportunity to gain equity in the vehicle. For instance, owning an electric car outright provides the opportunity to sell the vehicle at any point and gain a portion of the initial investment back or trade it in towards the purchase of a new vehicle. You also do not need to worry about incurring charges once your lease term is up!
Freedom to customise the car as you wish
The freedom to customise your electric car is an advantage unlike leasing, where lessees are often restricted in their ability to modify the vehicle. From selecting personalised exterior colours to upgrading interior features and installing accessories, owners have the freedom to tailor their electric car to match their preferences and lifestyle. The level of customisation fosters a sense of ownership, making it feel like it’s truly their own. In some instances, customisation options can also enhance the resale value of the vehicle, as personalised features may appeal to potential buyers seeking a unique driving experience.
Factors to consider when choosing between leasing and buying
Not only should you consider the positives and negatives of leasing or buying, but you also need to consider how it will work for you - whether you are intending to grow your family or go on a road trip. Here are some things you should consider before taking the leap to electric.
Financial Considerations
There are some financial considerations to be made:
Upfront costs
When comparing the long-term cost-effectiveness of buying or leasing an electric car, you need to consider the initial costs and total ownership costs. Buying outright means higher upfront expenses, including the purchase price, tax and registration feeds, it does often result in lower total ownership costs throughout the vehicle’s lifespan. This is because of lower interest charges and the absence of lease-end fees.
Leasing does offer lower initial costs, the total expense can be higher because of the monthly lease payments. However, leasing allows access to newer technology with an option to upgrade at the end of the lease term. Ultimately, the decision between buying and leasing depends on individual preferences, financial circumstances and long-term goals.
Monthly payments
Buying a car outright means owners may benefit from lower interest charges and financing costs compared to leasing. While leasing involves financing charges within the monthly lease payments, buying outright can allow owners to secure financing at potentially lower interest rates, especially if they have a good credit history. This can result in significant savings over the term of the loan, reducing the total cost of ownership. Owners also have the flexibility to choose various financing options, like longer loan terms or paying off the loan early, depending on their financial situation and preferences.
Lifestyle and driving habits
You should assess your typical driving patterns, including the daily commute distance, frequency of long-distance travel and expected mileage. This assessment will help you to determine whether leasing, with its mileage restrictions and fixed lease terms, aligns better with your driving needs and preferences, or if the flexibility of ownership is more suitable.
You should also consider your plans - are you likely to need a different car in the near future, like the size of your family or job requirements? By taking these factors into account you make an informed decision that best suits your circumstances.
Lease an electric car through The Electric Car Scheme
The Electric Car Scheme is an electric car salary sacrifice scheme that makes it easy for employees to access government tax incentives and save money on electric cars. Companies offer The Electric Car Scheme as an employee benefit to attract and retain talent whilst also boosting their environmental, social and governance goals.
In short, salary sacrifice is a financial agreement where an employee agrees to sacrifice part of their pre-tax salary in exchange for a non-cash benefit (in this case, an electric vehicle).
How does salary sacrifice work?
An employee selects an electric vehicle with a set budget, and the employer then leases the car on their behalf. The lease cost is then deducted from the employee’s gross salary, lowering their taxable income. This arrangement can lead to significant savings for the employee and employer because it reduces the amount of Income Tax and National Insurance that needs to be paid.
This is appealing because of the low Benefit-in-Kind tax rates for electric vehicles. This ultimately means employees can enjoy driving a new EV at a reduced overall cost to traditional car leases or purchases - it’s a win-win. You can learn more about Benefit-in-Kind (BiK) by reading our blog dedicated to the subject.
What are the benefits of electric car salary sacrifice?
As mentioned previously, an EV salary sacrifice scheme is advantageous for employees and employers. Here are some of the benefits of an electric car salary sacrifice scheme:
Save 30-60% on a brand-new electric car
An EV salary sacrifice scheme allows you to drive a brand-new electric car for significantly less than if you lease one privately because the cost of your car is deducted from your gross salary. Employee income tax and National Insurance Contributions are based on your lower, revised salary, which reduces the amount of tax you have to pay each month.
Companies who offer this as an employee benefit also save on the monthly NIC savings for you as an employer.
Include servicing, maintenance and insurance
Many electric car salary sacrifice schemes allow you to include servicing and maintenance costs, like tyre replacements and repair as well as road-tax, insurance and roadside breakdown for the duration of your contract. You simply have to pay to charge the car.
Reduce your carbon footprint and boost employee benefits
Driving an electric car is one of the main ways you can reduce your carbon footprint as an employee but it also offers an important benefit that’s available from the company’s perspective. A recent study conducted by our team at The Electric Car Scheme found that 48% of UK employees have said they would be more likely to feel motivated at a company that offers ‘green benefits’ and 44% said they’re more likely to stay at a company like this.
Leasing an electric car through The Electric Car Scheme is a win-win for both employee and employer. You can see how it worked for Dreams in the video below.
