Electric cars have a lot going for them. They produce zero direct emissions, are relatively cheap to run, incentivised by the government, and getting less expensive and more accessible every day.
But how does electric car finance work?
If you’re tempted to go green and make the switch to an electric car, we’re here to help. Let us guide you through the different finance options available so you can make the right choice for you.
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Whether you’re dreaming of a Nissan Leaf, a Mini Electric, or a Tesla Model 3, you might not have a savings pot big enough to buy your new electric car outright.
There’s no shame in needing to finance any vehicle, especially electric cars, which can still be a little pricier upfront than their petrol and diesel counterparts.
Electric car finance works just like any other type of car finance; you’ll borrow money from a lender - whether that’s a bank, building society, or specialist car finance provider - to cover the cost of buying your new or used car.
Financing an electric car usually follows three steps:
Depending on your individual circumstances, affordability, and credit history, you may be eligible to buy an electric car on finance.
And what’s more? You’ve got options!
There’s no difference when buying an electric or hybrid car than if you’d had your heart set on a standard fuel model; electric car finance types on offer include HP, PCP, leasing - or Personal Contract Hire (PCH) - and personal loans.
The best option for you will depend on your personal preferences, current circumstances, and driving habits.
If you’ve always dreamed of being a car owner and spend a lot of time powering up and down the motorway each month, you’d likely be best suited to a finance deal that leads to car ownership and doesn’t come with any mileage restrictions like HP.
On the other hand, if you spend your morning commute reading up on the latest electric car models and the high-spec features available, a more flexible finance option that allows you to change cars regularly like leasing might be a better fit.
HP finance is one of the most popular types of car finance You’ll typically pay a deposit upfront and then make monthly repayments for between one and six years. At the end of your agreement, you’ll pay a small option-to-purchase fee to transfer the vehicle’s title and then your electric car will officially be all yours!
PCP finance is a more flexible type of car finance. Like HP, you’ll pay a deposit upfront and then make fixed monthly repayments for between one and five years. But PCP doesn’t necessarily have to lead to car ownership:
Personal loans are a different beast as they (usually) aren’t secured against the vehicle. Instead, you’ll become the car’s legal owner as soon as you’ve used the loan to pay the dealer or private seller:
Also known as Personal Contract Hire or PCH, leasing is a lot like a long-term car rental and rarely ends in car ownership.
The exact cost of financing an electric car will depend on a few different factors including:
The lower your interest rate, the cheaper your electric car loan will be. The interest rate offered to you will likely be influenced by your credit history. Having a good credit score could help you secure a more competitive rate.
A more expensive car will require a larger loan with higher monthly repayments than a small or used car that’s cheaper to buy.
If you can afford to put down more money upfront, you won’t need to borrow as much to buy your car and your monthly repayment amount could be lower as a result.
PCP typically offers lower monthly repayments than HP or personal loans as you don’t have to pay back the car’s full purchase price. Keep in mind that the one-off balloon payment will apply though if you choose to buy the car at the end of the agreement.
A longer term will spread the cost of your loan over more months, decreasing your monthly repayment amount. Even so, the overall cost of your finance could be higher as you’ll pay back more in interest.
With ambitious climate targets to achieve, the government has put several different incentives in place to encourage people to make the switch to electric car ownership.
Electric car buyers and owners can currently benefit from: