Over the past decade, electric vehicles (EVs) have become increasingly popular for a variety of reasons. For example, EV owners are able to save money on gas and take advantage of various incentives. Charging stations have also become more widespread and easier to access, and more electric vehicle models have hit the market.
If you’ve recently sparked an interest in electric vehicles and want to see what the hype is about without making a long-term commitment, you could choose to lease instead of buying. Read on to learn about leasing vs. buying, how to go about leasing an electric vehicle, and the pros and cons of doing so.
Leasing Vs. Buying an Electric Vehicle
Just like you have the option to buy or lease a conventional gas-powered vehicle, you can choose to buy or lease an electric vehicle. Leasing means that you rent the vehicle from the dealership for a predetermined period and then return it at the end of the lease. Buying, on the other hand, means that you own the vehicle and can keep it for as long as you want.
When you’re deciding between leasing and buying an electric vehicle, it’s important to take some key differences into consideration. These differences can have a large impact on your finances. Let’s take a look at a few of them.
Credit Score Requirement
One factor you'll need to consider when you’re planning to lease or purchase a vehicle of any kind is your credit score. You can usually expect a higher credit score requirement if you plan to lease an electric car instead of buying one. Credit score requirements vary by lender, so you should discuss your individual situations with a dealer or lender if you’re considering buying or leasing an electric car.
Monthly Payments
If you’re planning to lease an electric vehicle, you can likely expect lower monthly payments than if you were to buy it, and it could be a difference of several hundred dollars. Keep in mind, though, that the payments you make toward a lease go to the vehicle’s depreciation and rental charges, not toward owning the vehicle.
Mileage Caps
Another factor that’s typical in a vehicle lease and not in a vehicle purchase is a restriction on the number of miles you can drive it. Lease contracts usually have mileage restrictions, and if you exceed the limit, you might be charged for each mile you go over. The average cap is 12,000 miles per year or 36,000 miles over a 36-month lease. The typical penalty is about $0.25 per excess mile.
Equity
One of the most significant differences between leasing and buying an electric vehicle is your ability to build equity when you buy that you don’t have when you lease. Regardless of whether you pay cash or finance your electric vehicle purchase, you’ll eventually have equity in the car. Once you pay off an electric vehicle, you’re able to continue driving it or resell it.
How to Lease an Electric Car
The process of leasing an electric vehicle is very similar to that of leasing a regular gas-powered vehicle. You’ll follow these steps:
- Make a down payment: You'll start your leasing process by visiting a dealership, selecting the electric car you want to lease, and in most cases, making a down payment.
- Choose a lease term: Next, you’ll decide how long you want to lease the car. The typical leasing timespan is between two and four years.
- Set a mileage cap: You’ll also need to decide how many miles you want to drive each year. The average mileage cap is 12,000 miles per year. Remember, you face per-mile fees if you exceed the predetermined limit.
- Make monthly lease payments: Each month, you’ll make payments to the leasing company. The payments are determined by the car’s expected depreciation, taxes, interest, and other fees.
- Return or buy the vehicle: At the end of the lease, you’ll have the option to return the electric car to the dealership or keep it by paying the buyout cost, which is usually close to the car’s residual value.
The Pros and Cons of Leasing an Electric Car
As with any purchase or rental type of agreement, there are pros and cons associated with choosing to lease an electric vehicle. Let’s take a look at these below.
Pros
- Ability to try out new EVs: If you’re someone who likes to try out the latest and greatest on the market or switch things up frequently, leasing allows you to trade a car in after a few years and drive off in another one easily.
- Little to no down payment requirement: If you have a good credit score, you’ll likely only need to make a small down payment on an electric vehicle lease.
- Warranty coverage: Every new vehicle factory warranty on the market is for a minimum of 36 months or 36,000 miles. This means that as long as you don’t exceed your mileage cap, your vehicle could be protected the whole time you have it.
- Easy turn in: As long as you’ve stayed under your mileage limit and you have properly upkept the vehicle, it’s easy to hand the keys over and walk away when your lease ends.
- Option to purchase: When your lease runs out, you’ll have the option to purchase the electric vehicle instead of turning it in. If you decide to pay the buyout cost, you can expect to pay close to the car’s residual value. If the car’s actual value is higher than the residual value, you can actually end up making money by reselling or trading it in.
Cons
- No equity: The most significant drawback to leasing an electric car instead of buying one is that you aren’t given the opportunity to build equity. This means that when your lease runs out, you’re left with no vehicle and no funds to put towards the purchase of another.
- Early termination penalties: While it’s very easy to hand your keys in and walk away at the end of the lease agreement, it’s not as easy to cut ties if you want to end the lease early for any reason. Ending your lease agreement early will typically result in costly early termination penalties.
- Mileage restrictions: As we discussed above, leasing a vehicle comes with a limit to how many miles you’re allowed to put on it. Exceeding that cap can result in a per-mile charge.
Key Takeaways on Leasing an EV
For those who want to try out an electric vehicle without committing to it long term, leasing might be a good option. Leasing electric vehicles comes with its share of drawbacks and benefits, and it’s important to do your research and become familiar with your EV leasing terms before going through with it.
If you’re considering investing in an electric vehicle or have already purchased one, check out Gexa Energy's EV plans.
