Electric car financing 2023

The Society of Motor Manufacturers and Traders (SMMT) reported that March 2023 was the best month ever for sales of electric vehicles.

During the month, electric vehicles (EVs) accounted for more than one-third of registrations. In addition, electric vehicles accounted for nearly 17% of sales in 2017, surpassing new diesel vehicles for the first time, according to the SMMT.

According to MoneySuperMarket, the increase in EV sales is “not surprising” given the climate crisis. EVs have numerous benefits, according to the comparison website, but “the main selling points” are low operating costs and zero emissions.

Nevertheless, “electric cars remain an expensive option,” according to the AA. While you can purchase a new gasoline-powered vehicle for less than £10,000, there are “few” electric vehicles for less than £20,000. The average expense, according to NimbleFins, is £50,000.

Is it worthwhile to purchase an electric car?

According to MoneyWeek, the idea of possessing an electric car is appealing. There are now a variety of models available, so you won’t have to drive something cumbersome and unsightly.

The financial website explained that in addition to being environmentally responsible, an electric vehicle should be less expensive to operate than a conventional vehicle when fuel costs, government subsidies, and emissions penalties are considered.

However, EVs typically cost more up front, and many of the once-popular government subsidies have been eliminated. The Department of Transport previously provided a subsidy for plug-in hybrid and electric cars to reduce purchase prices and boost sales, but eliminated these incentives last year on the grounds that it had “successfully established a mature market for ultra-low emission vehicles.”

Charging is another issue, particularly when it comes to public charging. EV owners with a home charger have the ability to power their vehicles overnight, when electricity rates are cheaper. The Times reported that this can save them up to £130 for every 1,000 kilometres. However, “savings are reduced to £40 for drivers who use public charging stations.”

Historically, the DfT also provided funding for the purchase of household chargers, but this is now only available to landlords, those who rent or own an apartment, or those who are installing chargers at their workplace. Instead, the emphasis is now on taxis, motorcycles, vans and lorries, as well as wheelchair-accessible vehicles and public charging stations.

The newspaper added that ministers are being urged to resolve this VAT disparity, with motorists charging at home paying 5% domestic VAT and those using public chargers paying 20%.

Leasing an EV

As with gasoline and diesel vehicles, it is possible to lease, personal contract hire, or hire purchase an electric vehicle. The AA stated that by leasing an EV, you can pay less over time, with monthly payments and a modest down payment helping to spread out the cost.

The RAC noted that leasing is presently the most popular method for financing an electric vehicle. The breakdown service provider explained, “not least because you’re essentially renting the car from the leasing company” Some monthly rates can be as low as £200.

MoneySuperMarket warned that if you lease a vehicle, you will be subject to restrictions such as a mileage limit. Also, you will be unable to modify it.

Employers and employees can lease an electric vehicle through a salary sacrifice program. DriveElectric explained that the employer leases the electric vehicle through a finance company and offers the program to their employees. The employee pays for the automobile with a portion of their monthly salary before taxes, thereby reducing their monthly tax contributions.

Users are still required to pay a benefit in kind (BIK) tax, but one of the reasons EV salary sacrifice is so attractive, according to Drive Electric, is that the BIK rate is currently only 2%. The government of the United Kingdom has confirmed that BIK rates will gradually increase, but remain extremely low relative to internal combustion engine vehicles through at least 2028.

Personal agreement versus hire purchase

According to MoneySuperMarket, drivers can also acquire an electric vehicle through a personal contract purchase (PCP) arrangement in which they pay an initial deposit and finance a portion of the vehicle’s remaining value. After the contract expires, you have the option of making a final, larger payment to retain the vehicle, or returning it.

An alternative is a hire purchase (HP) agreement, which allows you to spread out the cost of a new electric vehicle over a set period of time and own it at the end of the term.

MoneySuperMarket noted that while PCP typically offers lower monthly payments than HP, the balance on your finance will decrease more slowly with a PCP – “so you end up paying more interest overall compared to an HP deal at the same rate.”

The RAC cautioned that an HP agreement may not be the best option for an EV because “the rate of development in the field of battery technology is such that your EV may be slightly out of date and obsolete by the end of the contract.”

If you want to own a vehicle, a car loan is another option. “You’ll own the car outright from the moment you take out the loan, making monthly payments to repay the debt,”

There are also subscription programs for electric vehicles offered by manufacturers such as Volvo and Hyundai. According to Parkers, these operate similarly to a lease in that you are essentially renting the vehicle and will never own it. The difference is that subscription schemes bundle the cost of a vehicle and the majority of additional services, such as maintenance, breakdown coverage, and tax, into a single, fixed monthly payment. Typically, contracts last from one to twenty-four months.

Maria McCarthy cautioned in the Evening Standard that many of these auto financing deals are “complex transactions” involving not only the vehicle itself but also aspects such as mileage allowances, fees for vehicle damage, insurance, a charge for additional drivers, maintenance, fees for early lease termination, and delivery fees.

She advised spending time calculating numbers and reading the fine print, as well as “asking family and friends for advice and visiting electric vehicle forums on social media for personal recommendations.”

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About the Author: Sanjh Vishwakarma

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