What finance is available for electric cars?

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.

Got a specific question? Why not jump to:

• How does financing an electric car work?
• Can I get an electric car on finance?
• What finance options are available?
• How much might financing an electric car cost?
• Is there government help available for financing an electric car?

How does financing an electric car work?

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:

• First, you’ll choose a type of car finance agreement and a payment term. Depending on whether you opt for Hire Purchase (HP), Personal Contract Purchase (PCP) or another loan type, your term could last anywhere from one to six years.
• You’ll put down an initial deposit upfront – approx. 10% of the vehicle’s purchase price is usually considered a good deposit.
• You’ll then pay a fixed monthly payment, including interest, until the loan term ends.

Can I get an electric car on finance?

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.

What finance options are available?

Hire Purchase (HP) finance

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!

• HP loans are secured against your car, meaning you won’t be its legal owner during the agreement. You won’t be allowed to sell or modify it until you own it.
• You usually won’t have to worry about an annual mileage limit.
• Monthly payments can be higher than other finance options like PCP as the loan will be equivalent to the car’s full purchase price (minus any deposit).
• HP is typically a more accessible finance option for people who have missed payments in the past or have a poor credit score for any other reason.

Personal Contract Purchase (PCP) finance

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:

• When your PCP loan ends, you can make a large one-off payment to buy the car (known as the balloon payment), hand it back to the lender, or use any positive equity available as a deposit in a new deal.
  
  
• Instead of borrowing the car’s full purchase price, your loan payments will cover the difference between its current price and how much it’s estimated it’ll be worth at the end of your agreement (known as its Guaranteed Minimum Future Value or GMFV).
  
  
• PCP can have lower monthly repayments than HP, but you’ll have to pay a large one-off balloon payment, usually equivalent to the GMFV, to become the car’s legal owner.
  
  
• An annual mileage limit will likely apply, and you’ll face an extra charge for every mile you exceed it.   

Personal Loan

 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:

• As its legal owner, you’re free to sell the car, give it to your best friend, or add a new set of alloys if you like. You just need to make sure you keep making loan repayments until the agreement ends.
• Unsecured loans present more of a risk to lenders, so they’re usually restricted to people with a solid payment history and good credit score.
• Monthly payments can be higher than other finance options.

 Leasing

 Also known as Personal Contract Hire or PCH, leasing is a lot like a long-term car rental and rarely ends in car ownership.

• Lease agreements usually last between two and four years and you’ll pay a fixed monthly payment during this time.
• You’ll typically need to hand the car back at the end of your lease with no option to buy, no matter how much you love it.
• An upfront deposit is usually required.
• You’ll likely have to keep the vehicle in good condition and agree to an annual mileage limit.

How much might financing an electric car cost?

The exact cost of financing an electric car will depend on a few different factors including:

The loan interest rate

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.

The car’s purchase price

A more expensive car will require a larger loan with higher monthly repayments than a small or used car that’s cheaper to buy.

The size of your deposit

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.

The loan type

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.

The loan term

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.

Is there government help available for financing an electric car?

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:

• Charge point grants – up to £350 off the cost of installing a residential electric vehicle charger at home via the Electric Vehicle Homecharge Scheme (EVHS).
• Exemption from road tax (vehicle excise duty) for zero-emissions vehicles.
• No fuel duty and a reduction of VAT by using electricity compared to filling up with petrol or diesel (5% vs. 20%).
• No charge to drive in low emissions zones such as London’s ULEZ and Congestion Charge zones.
• Tax breaks if you’re a business owner buying electric cars for your own fleet of company cars and grants for installing charge points and supporting infrastructure for your staff and vehicles. 
  
  Up to date as of March 2024. Government help is subject to change.