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Electric car finance

What are the options for buying an electric car on finance?

As the push to switch to electric vehicles continues, our guide can help you decide on the best finance option for your new or second hand electric car

 

By Tim Heming

Published: 30 November 2021

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Compare finance deals with our partner Motiv

Consumer demand for electric vehicles is on the march. According to figures from the Society of Motor Manufacturers and Traders, there are more than 140 models of electrified cars currently on the market in the UK. 

The production of battery electric and hybrid vehicles rose to an 18.8% share of all cars produced in Britain last year, says the SMMT, up from 14.8% in 2019, as the UK turned out 172,857 alternatively-fuelled vehicles. 

Electric vehicles have many advantages - low running costs and producing zero emissions being the main selling points. But they can be expensive to buy outright. Many drivers look to different forms of finance to make the purchase of an electric car more affordable.  

Can I buy an electric car on finance?  

Yes, just as with a standard fuel vehicle, you can buy an electric car on finance and for many drivers this may be the most cost-effective option. There are a variety of ways to get an electric vehicle on finance including personal contract purchase (PCP), hire purchase (HP), car leasing or even taking out a car loan. 

What finance options are available if I’m buying an electric vehicle?  

You can finance an electric vehicle in the same way as a standard fuel car - through car finance, a loan or leasing, for example. There are several different types of finance, the most common are: 

Car loan 

Many people use a personal unsecured loan to buy their new or used car. The benefit is you can spread the cost over months and years to make it more affordable. You’ll need to borrow enough to purchase your chosen electric car outright and then pay it back with interest over an agreed term. Taking out a loan will cost you more overall (compared to buying with cash), because you’ll have interest added to the borrowing. But it means you’ll be able to purchase the car straight away you’ll own the vehicle. 

Personal contract purchase (PCP) 

personal contract purchase (PCP) deal is a purchase agreement that doesn’t cover the full cost of the car but covers the depreciation - the amount the car value will fall over the time you have it. At the end of the deal term you’ll have the option to make a large final payment (sometimes called a balloon payment) to keep the car or hand it back and walk away. Alternatively, you can trade it in for a new PCP plan on a new car.  

Hire purchase 

With an HP plan you’ll make monthly payments to the car finance company, but you are legally only hiring the car until you make the final payment - only at this point will you legally own the car. 

You’ll typically be asked to put down a deposit and the larger it is, the lower overall interest you’re likely to pay. You’ll have a choice about the length of term of your HP deal.   

Personal contract hire (PCH) 

Car leasing, also known as personal contract hire or PCH, is a long term rental arrangement that involves hiring a new car and returning it at the end of the lease period without having the option to buy.  

Can I get a loan to buy an electric vehicle?   

You should be able to get a car loan to buy an electric vehicle. There are advantages and disadvantages when compared with other types of electric car finance. Here are some pros and cons of getting a car loan for an electric vehicle:  

Pros 

  • You’ll own the car outright from the start of the deal 

  • Fixed monthly payments so you know your outgoings 

  • Car can’t be seized if you fall behind on payments 

  • Buy your car anywhere - you can buy from private sellers as well as dealerships 

  • No mileage restrictions 

  • You can modify the car (but you should tell your insurer if you do this) 

Cons 

  • Might not be able to borrow enough to afford the car you want (PCP may give more options) 

  • You can’t lower your monthly repayments as you might be able to under PCP 

  • No option to return the car at the end of the term 

If you’re undecided which form of financing is best for you, read our guide to bank loans versus car finance

Is there any government help or loans for electric cars?  

The uptake of electric vehicles is being encouraged by government, so there are a swathe of financial incentives to get you onboard. These include:  

  • Plug-in grants: You can get a discount of up to £2,500 on the price of new low-emission vehicles. Only vehicles that have been approved by the government are eligible for a grant. For example, those that can travel at least 70 miles without any emissions at all. The dealership will include the value of the grant in the vehicle’s price  

  • Charge point grants: You could get funding of up to 75% towards the cost of installing an electric vehicle charge point at your home in the UK through the Electric Vehicle Homecharge Scheme (EVHS). Those in Scotland can benefit from additional discounts through the Energy Saving Trust 

  • Road tax savings: Driving a zero-emission electric vehicle means you’re exempt from paying Vehicle Excise Duty (VED), commonly known as road tax 

  • No fuel duty: Fuel duty is only applied to combustible fuels, such as petrol and diesel, and not electric vehicles for the electricity they use. You also save on VAT. Electricity used to recharge a plug-in vehicle at home attracts only a 5% level of VAT compared to 20% for road fuels  

  • Freedom to drive: Towns and cities in the UK are increasingly bringing in low emission zones to dissuade polluting traffic from their centres and populated areas. The daily charges for driving in these zones can be high, but electric vehicles are usually exempt, giving you more freedom to drive where you want without paying a fee  

  • Tax benefits: Both employers and staff benefit from favourable tax treatment in a number of ways relative to conventional vehicles. These include lower rates of tax for company fleets and improved benefit-in-kind terms for employees driving electric vehicles  

  • Electric vehicle loan (Scotland): The interest-free electric vehicle loan, funded by the Scottish Government, offers drivers in Scotland loans of up to £28,000 to cover the cost of purchasing a new pure electric vehicle. The loan has a repayment term of up to six years  

Is it worth leasing an electric car?  

Deciding whether you’re better placed leasing a car or financing it through a PCP deal or a car loan comes down to your personal financial situation and preference. For example, do you want to own the car at the end of the deal – or are you happy to trade in for a new model and finance arrangement every few years, for example? 

Leasing is effectively a long-term rental agreement where you’ll return the car at the end of the term. In contrast with a car loan you borrow the full amount and purchase the car outright. Alternatively with a PCP contract you’ll have a choice to pay and keep the car at the end of the deal or return it.    

Can I buy a secondhand electric vehicle with car finance?  

The secondhand market for electric cars is growing and there are a range of used models available with a choice of car finance that works in the same way as for standard fuel-powered vehicles. However, while available for nearly-new models, you may find PCP finance harder to come by for older electric cars. 

The cheapest models also sometimes come without batteries included in the price, so you may need to lease a battery separately. While this sounds like an added cost, if the capacity of your battery drops below a certain efficiency threshold, the car company should replace it for you (if you’re leasing), which wouldn’t be the case if you owned the battery.  

Can I get electric car finance if I have bad credit?  

You might be able to get electric car finance if you have a bad credit, but as well as your credit score, the decision will depend on your ability to afford the payments and the specific terms and conditions of the lender. 

If you have a low credit score, you may find you won’t be able to borrow as much money and you’re likely to have a smaller choice of electric cars available to you. The terms of any finance could also be more expensive, meaning a higher rate of interest or APR.

The best way to improve your choice of finance deal and the interest rates you’re offered is to build your credit score. You can find out your credit score and see tips on how to boost it using our free credit monitor service.  

Will the car finance cost more for an electric car? 

No, you won’t pay more for your finance deal because your car is electric. The cost of financing will be dictated by your credit history and financial situation -  not how the car is powered.  

However, any car –electric, hybrid, petrol or deisel - bought on finance is likely to cost more overall than paying upfront in cash. This is because you will be charged interest to cover the cost of credit.   

How much will it cost to buy an electric car with a PCP or HP plan?  

To be able to fairly compare PCP and HP, we’ll assume you plan to keep the electric car at the end of the PCP deal. With this in mind, the cost of your electric car will include the upfront deposit, regular monthly payments and the final ‘balloon’ payment to officially own the vehicle at the end of the contract.  

While PCP generally offers lower monthly payments, it means the balance on your finance will reduce more slowly so you end up paying more interest overall compared to an HP deal at the same rate. 

The table below shows an example of the comparative costs of PCP and HP for the same value car. 
 

 
HP example 

 

PCP example 

Car price 

£15,000 

£15,000 

Deposit 

£1,000 

£1,000 

Total Borrowing (Car Price – Deposit) 

£14,000 

£14,000 

 Term

 36 months

 36 months

Representative APR*  7.9% 7.9%
Monthly cost  £436.31  £268.85 
GMFV / Final payment**  N/A £6,750 

Source: Motiv 

*Assumes the customer has a good or excellent credit rating. 

**Assumes 45% of car price

Can I get a 0% finance deal for a new electric vehicle? 

You may be able to get a 0% finance deal for a new electric car, but you should fully research the purchase first and make sure you understand the terms and conditions. 

While a 0% finance deal sounds like the ideal way to spread your payments, compare prices elsewhere to check the car price hasn’t been ‘marked up’ or there aren’t better deals available. Also, take note of any other charges that might catch you out, such as excessively high fees for annual servicing. 

How much will it cost to run and charge my electric vehicle?  

How much it will cost you to run and charge your electric car will depend on two key factors: 

  1. Insurance: In the past, insuring an electric car was more expensive than a diesel and petrol car because of the high cost of replacement parts. However, this is coming down with more electric cars now in production and on the road. Our guide to electric car insurance explains more. 

  2. Charging: While the purchase price of electric vehicles is currently higher than standard cars, with no road tax and the cost of recharging significantly lower than a tank of fuel, the running costs tend to be a lot lower. There are thousands of free electric car charge points in the UK, often found at supermarkets, shopping centres, service stations and public car parks.  

For more information on the running costs of electric compared to standard vehicles read our guide to the true cost of driving green

Other car finance guides  

Looking for more guidance and information about the different types of car finance? Our guides are here to help:  

How to compare electric car finance with MoneySuperMarket

You can compare car finance deals with our partner Motiv. It’s an online service that lets you see if you’re eligible for HP and PCP deals and the rates you’ll pay.   

It only takes a few minutes to enter your details and compare offers, it's free and searching for a deal won’t harm your credit score.