Buying an electric car on finance: A complete guide
As the push to switch to electric vehicles continues, our guide can help you decide on the best finance option for your new or secondhand electric car.
With people becoming more concerned about the environment it’s not surprising that electric vehicles have become more popular. 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.
How does electric car finance work?
Electric car finance works just like any other type of car finance. You will have to borrow money from a lender to cover the cost of the electric car. You’ll usually have to pay an initial deposit and then monthly payments afterwards.
Depending on the type of electric car finance you choose, you then may own the car once the contract is finished or have the choice to buy it. If you’ve gone with the car leasing option, then once the contract is up, you return the car back.
Can I get an electric PCP car deal?
You can get an electric car through a personal contract purchase (PCP). With a PCP, you pay an initial deposit and borrow towards some of the car’s remaining value. Once the contract ends you can make a final larger payment to keep the car.
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 other finance options are available on electric cars?
Apart from PCP, these are the other car finance options you can use to get an electric car:
Car loan: You can get an unsecured personal loan to spread the cost of buying an electric car. With a car loan, you’ll own the car outright from when you take out the loan, paying back the debt in monthly payments
Hire purchase: With hire purchase (HP), you put down a deposit and then make monthly repayments to the car finance firm. You’re essentially paying to hire the car and you’ll only own it once you’ve made the last payment
Electric car leasing: You can lease an electric car, which allows you to drive a brand new vehicle for considerably cheaper than buying it outright. To lease an electric car, you pay a deposit and then make monthly repayments. When you lease a car, you don’t own it and will face restrictions, such as mileage limit and being unable to modify it
What are the pros and cons of electric cars?
Electric cars come with benefits and downsides, such as:
Advantages:
Zero emissions: Because electric cars are powered by an electric battery, they won’t be producing any exhaust emissions. When driving an electric car, you can be assured your car is kinder to the environment
No need for fuel: With an electric car, you’ll no longer have to fill up your car with fuel. Not having to use fuel can be a big benefit as in recent years it’s become more expensive
Maintenance savings: Unlike other cars, electric vehicles don’t need oil changes. They also have a lot fewer moving parts than cars with an engine, so they can be more affordable to maintain
Disadvantages:
Cost: Electric cars can be more expensive than diesel cars. This is why electric car finance can be an option, as it helps you spread the cost to buy one
Charging points: Although the number of electric car charging points has risen in the UK, they could still be more widely available
Charging time: Charging an electric car isn’t as fast as filling it up with petrol. How long it will take to charge an electric car will depend on the type of car and how powerful the charger is
How much will an electric car finance deal cost?
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
What government help is available when financing an electric car?
The uptake of electric vehicles is being encouraged by the government, so there are several 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 several 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
How do I choose the best electric car finance deal?
Choosing the best electric car finance deal will entirely depend on your preferences and needs. You need to carefully think about what you can afford and the terms and conditions for each car finance option. You should ask yourself these questions:
Do I want to own the car? If it’s important for you to own the car, then hire purchase (HP) could be right for you. With HP, you’ll own your car once the contract is over and won’t be restricted by mileage limits.
Are you not interested in owning the car? If you would rather not own the car, then PCP could be ideal as you’ll only own the car if you choose to make a larger payment when the contract ends. Car leasing could also work for you if you’re not interested in owning the car.
Want a brand new or pricier car? If you want a shiny more expensive set of wheels, a car loan could be a good idea. With a car loan, you can typically get newer and more expensive cars.
What other costs do I need to consider?
Charging: What sets apart electric cars from other cars is that they will need to be charged instead of filled up at a petrol station. So, you will need to keep in mind the cost of charging your car. How much it’ll cost to charge your electric car will depend on the charge point network and where they’re located.
Some local authorities will have free charging points while others will offer a pay-per-session approach. So, it’s important you find out about the price of charging points in your area.
Insurance: Electric vehicles can be pricier to insure when compared with other cars. This is because they have large batteries that will be expensive to replace if the car is damaged.
Is electric car finance right for me?
Deciding whether you’re better placed leasing a car or financing it through a PCP deal or a car loan comes down to your 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.
Financial journalist
Our expert says
Electric cars are growing in popularity as more people look to protect the environment, reduce their carbon footprint, and to lower their driving costs. With fuel costs now significantly more expensive than in the last few years, the running of an electric car is generally cheaper than a traditional petrol or diesel car, plus these older cars are set to be phased out in the future. However, as the technology is still relatively new, the upfront costs of buying an electric vehicle are high and this is a barrier to many people who would like to own one. One way around this is choosing a finance deal which would allow you to have your own electric car but if you’re going down this route there are lots of questions to ask yourself before you commit. Finance deals are not to be entered into lightly and you need to make sure you’re happy with the contract and all of the costs involved before you sign on the dotted line.
Other useful 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 electric 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.
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 if 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.
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 a loan to buy an electric vehicle?
Yes, you can get a car loan to buy an electric vehicle.
Am I eligible to buy an electric car on finance?
Your eligibility to buy an electric car on finance will depend on a few factors. Usually, you’ll have to be a certain age (normally 18) to be eligible. Your credit score will also impact your eligibility. Generally, the higher your credit score, the easier it will be to be accepted for car finance.
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.
Can I pay off my electric car finance deal early?
You can pay off your electric car finance deal early, but you may have to pay your finance provider an early termination fee. Therefore, it’s important to check the terms and conditions of your car finance contract to know exactly what you might pay if you decide to end your car finance deal quicker than planned.