Electric Vehicles: To Buy or Lease? Pros and Cons
If you're considering purchasing an electric car, truck, or SUV, you may be wondering whether it makes more sense to buy or lease the vehicle. To make this decision, there are some important factors to consider. Just like with traditional gas-powered vehicles, whether to buy or lease an electric vehicle will depend on your individual circumstances and preferences. However, there are also some unique considerations to keep in mind when it comes to electric vehicles. So, let’s take a look at some of the factors you will want to consider when making this important financial choice.
Buying vs. Leasing a Vehicle: General Pros and Cons
When you buy a vehicle, you take ownership of the car and pay the full cost upfront or through financing. When you lease a car, you make monthly payments for a specified period, typically between 2 to 3 years, and return it at the end of the lease term. Both options have their advantages and disadvantages.
Why Lease a Car?
You’ll enjoy lower monthly payments compared to buying a car.
You can drive a more expensive car than could buy outright.
You’ll have the flexibility to upgrade to a newer model every few years.
The manufacturer's warranty usually covers the car for the duration of the lease.
You will have reduced repair and maintenance costs.
You’ll avoid the hassle of trying to sell or trade-in the car when it's time to upgrade.
Reasons to Buy Instead of Lease:
It will cost less overall.
You can customize the vehicle to your liking.
You’ll have no mileage restriction, which is an important issue for those who drive a lot or often travel long distances.
You retain the ability to sell the car or trade it in whenever you choose.
You may negotiate more flexible terms of payment, including the ability to pay off the car loan early, or finance through a variety of lenders.
You will have less restrictive agreements regarding use and resale, as lease contracts often include stricter terms and conditions.
What to consider when buying or leasing an electric vehicle (EV) versus a gas vehicle:
In addition to the general considerations noted above, there are additional factors to review before deciding whether to buy or lease an electric vehicle instead of a gas vehicle. These considerations fall into five broad “buckets”: (1) environmental impact; (2) costs; (3) range needs; (4) charging access; and (5) tax incentives.
1. Environmental Impact
Many people are motivated to drive an electric vehicle because they are concerned about the environmental impact of gas cars. Switching to an EV is one of the easiest ways to cut your family’s carbon footprint. In fact, driving typically makes up about 30% of household emissions. EVs are also run cleaner. They have no tailpipe emissions, so they improve air quality and reduce pollution in your local community. For a deeper dive into the environmental savings of choosing an EV, check out this post.
2. Costs
To better understand the costs of leasing vs. buying an EV, let’s look at two real world examples. First, let’s say you decide on buying a Tesla Model 3 and the starting price for a new Model 3 is $41,190. Assuming a 10% down payment of $4,119 and a 3.5% interest rate on a 5-year loan, the monthly payment would be $728. Over the course of 5 years, the total cost of the car would be $47,956, including the down payment and interest. Leasing the same EV for three years with a 12,000-mile annual limit would require a down payment of $4,500 and monthly payments of $499. Over the course of the lease, the total cost would be less than half, at just $20,964. However, at the end of the lease period, you would have to either return the car or buy it at its residual value.
Next, let's consider the Nissan Leaf. The starting price for a new Leaf is $32,620. Assuming a 10% down payment of $3,262 and a 3.5% interest rate on a 5-year loan, the monthly payment would be $577. Over the course of 5 years, the total cost of the car would be $39,082, including the down payment and interest. Leasing the Nissan Leaf for 3 years with a 12,000-mile annual limit would require a down payment of $3,000 and monthly payments of $279. Over the course of the lease, the total cost would be $12,852 – about 1/3 the cost to buy. However, at the end of the lease period, you would have to return the car or buy it at its residual value.
As you can see in both instances, leasing the car results in a lower monthly payment, and significant savings over three years, but leaves you without owning the asset. The good news is that no matter whether you buy or lease, the annual costs of running and maintaining EVs is significantly less than the costs for gas powered cars. The average American driver can expect to save $2,000-$4,000 a year on gas and maintenance alone, and should factor in the ongoing savings as they make their decision.
3. Range Needs
EV battery technology in evolving rapidly, and newer models tend to be more advanced than older models – meaning the batteries both last longer, and the cars can go father on a single charge. For illustration, a 2017 Nissan Leaf has a 107 range, whereas by contrast, the typical EV sold today gets almost 300 miles per charge). If you plan to use your vehicle for longer commutes or lengthy road trips, you may want to look for an EV with a longer range.
Another exciting feature some new models of electric vehicles offer is “two-way charging”. This technology allows the car to charge its battery from an external power source but then also to discharge energy back into the grid or home. This also allows the car to act as a backup generator, providing power during an outage or emergency. As home generators can cost $7,000 - $10,000, this feature has real value, especially for homes in areas prone to power outages.
Given the rapid advancements in ev technology, leasing is a strong option to consider. Leasing allows you to upgrade to a newer model with an extended range and two-way charging, once it becomes readily available. Outdated battery technology may also drive down the value of EV resale.
4. Charging Access
EVs are very different from gas cars when it comes to refueling. The good news is that you can refuel at home while you sleep with the right charging setup – something that is impossible with a gas vehicle. That said, if you live in an apartment building or condo without a dedicated charging location, figuring out how and when to charge can add a layer of complication to EV ownership. Before you decide to make the switch, you need to consider what your charging options are, and even explore the cost of installing a charger at home. Make sure to check with your state and local utilities to learn what tax credits or other incentives are available, as you may be pleasantly surprised!
5. Tax Incentives
Speaking of tax incentives, a very big factor at play with EVs are the generous federal, state, and local tax incentives available. You may qualify for significant tax rebates when purchasing a new or used EV from a dealer. For example, the federal government currently is offering up to $7,500 in tax credits for the purchase of new a EV, and up to $4,000 for a used EV – as long as both you and the vehicle meet their requirements. These incentives do not apply directly to leased vehicles, as the car remains the property of the leasing company. Some companies may pass these tax savings on to you in the form of a reduce payment, but others may not. Either way, you will want to research what the various options and discounts are before you make your final decision.
Summary: No “Right” Answer
There is no universally correct answer when making the decision about whether it is best to buy or lease an electric vehicle. What is best for you depends on many factors that are specific to your circumstances and preferences. Buying may be less expensive in the long run and offer more flexibility, while leasing can provide lower monthly payments and less hassle, plus the opportunity to upgrade more readily. When considering an electric vehicle, additional factors such as environmental impact, cost, range needs, charging access, and tax incentives are important. Ultimately, the decision to buy or lease an EV should be based on your personal priorities and financial situation. Whichever option you choose, you’ll find that EVs are a cleaner and more sustainable mode of transportation that can also save you money.