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Is now a good time to invest in electric vehicles? Considerations when financing an EV Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive financial calculators and tools, publishing original and objective content. This allows you to conduct research and compare data for no cost and help you make sound financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site are from companies that compensate us. This compensation can affect the way and where products appear on the site, such as for instance, the order in which they be listed within the categories of listing and other categories, unless prohibited by law. This applies to our mortgage, home equity, and other home lending products. This compensation, however, does not influence the information we publish, or the reviews that you see on this site. We do not contain the vast array of companies or financial offers that may be open to you.
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7 minutes read. Published February 27, 2023
Writen by Rebecca Betterton Written by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers with the details of borrowing money to purchase an automobile.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to manage their finances with clear, well-researched information that breaks down otherwise complex topics into manageable bites.
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It is a financial strain car ownership, from the initial purchase to refilling at the gas station, has reached record levels for motorists in the past year. Although gas prices have climbed down and a gallon cost $3.38 on Feb. 24, according to AAA -the cost of financing a car is getting pricier as . The average cost for financing is $700 a month for new car financing, and $525 for vehicles used in 2022’s third quarter, . With steep costs to fill out and fund, along with the ever-present concerns about the climate, many drivers are searching for an alternative option. Perhaps you’re asking «Should I invest in an electric vehicle?» And you wouldn’t be alone. Electric vehicles (EV) demand has increased over the last few years, and TransUnion estimates that the EV market share will reach . However, the cost upfront of an electric vehicle may not be the best choice for all drivers. Do I need to buy an electric vehicle? The decision to purchase an electric vehicle should be approached with the same care as selecting the model and the maker of your next car. For some, the ease of low maintenance can make the price tag worthwhile. «From an entirely consumer experience perspective, buying an electric vehicle is very positive,» says Brian Moody the executive editor of Autotrader. «In addition that the driving experience offered by electric cars is very rewarding. It is quicker and more efficient, and electric cars come with amazing features, like the capability to heat or cool down your vehicle’s interior before hitting the road.» And, if you don’t have a fully electric vehicle, a hybrid or plug-in model is more efficient than traditional gas models while costing less than an electric vehicle. As Moody explains, these tend to carry lower costs as well. They «function in the same way as an electric car on a day-to-day basis, consuming gas only for long journeys.» This can be a viable option for people who want to drive electric but who aren’t yet prepared to commit to a full-time commitment. The electric car market has seen a lot of innovation in the last two years, and is set to continue growing. While initial costs have traditionally been high, they’re descending as more options are made accessible and established brands move into the electric car market. The U.S. auto market is changing to electric. Record-high gasoline prices may have helped to boost sales of electric cars. Electric vehicles accounted for 5.7 percent of all new vehicle registrations in Q2 2022, according to . This may not sound like a lot but it’s a significant increase over the 1.5 percent share of EVs in the second quarter of 2018. The growing demand for electric vehicles has resulted in improvements in financing options, including and tax credits. This expanded market is one of the primary reasons to consider buying an electric vehicle. Although Tesla currently dominates the market, TransUnion predicts the luxury brand will lose its percentage of the market by 2025, due to the influx of new and more mainstream makes coming into the market. Moody has a similar view in relation to the availability of vehicles. «It was the norm that there were just few tiny or extremely expensive electric cars. While EVs are more expensive as a whole, some individual models are less expensive. For example, the Kia EV6 and Chevrolet Bolt.» The Nissan Leaf is another cost-effective alternative to EVs. EV drivers share almost the same credit profile as the owners of luxury cars. Satyan Merchant, senior vice president and automotive business leader at TransUnion has noticed a growing interest in EV financing, which has a direct influence on the entire automobile finance industry. The study by TransUnion for 2022 found that from the 3 million consumers between 2019 to 2021 who financed new EV and traditional car loans The majority of EV customers had similar credit profiles as those who drive high-end vehicles. Those driving conventional EVs held an average score for credit of 775 and fell into the category of prime. Also, they had an APR average of 2.8 percent. This is less than the median APR of 4.9 percent for all new cars that are available to people with credit in the prime category. The high average competitive APR for electric vehicles isn’t solely due to the high credit profiles of these drivers. They are also making . The study also showed the drivers are more inclined to begin their journey . In fact nearly one third of the respondents did online research on the vehicle models and makes. Merchant explains, «Our research clearly shows that consumers of electric vehicles have excellent credit risk profiles. However, they also have varying preferences, such as a higher appetite in shopping around for financing of vehicles through electronic means.» This increased demand will likely reflect in the new options available for EV financing combined with an increasing number of vehicles that are available over the next few years. Options for eco-friendly financing are expanding This growing demand for electric cars has brought about improvements in financing. While consumers can borrow or use for their electric vehicles, lenders specifically for EVs are becoming more popular and provide the customers with a personalized experience through . Alex Liegl, CEO of Tenet, discusses the company’s work on EV financing and its goal to make climate-related investment an easy choice. The Tenet approach «gives customers the freedom to manage their upfront investment costs and to save the cash for down payment to pay for other expenses,» Liegl says. Additionally the deferment option that shifts an entire portion of the price into one final payment at close of the financing. This allows for low monthly payments as well as an easy financing experience- but a large amount might be due at the end. The purpose, Liegl says, is to «help customers fully transform their lives with electricity by making environmentally sustainable home improvements less expensive, such as installing solar panels, battery backup, smart appliances, EV charging and more.» Other companies, like , serve as an online marketplace for loan prequalification, which is directly tied to EV incentives and green loans that are available in your state. According to its website, drivers could save as much as $200 per month on their monthly EV loan payments. Do EVs have lower costs over the life of their lease? Then what makes an electric car worth it? The good feelings that come when you drive a car that is better for the environment isn’t the sole reason why people are switching to electric cars. Additionally, they can save money. While it’s true that gasoline is used up while driving, in certain instances, electric vehicles can be more affordable in the long run. A survey in 2020 found that drivers of electric vehicles have saved on average and repairs throughout the duration of ownership, according to Consumer Reports. This is due in part to the different methods of maintenance and upkeep of EVs. They don’t need oil changes or maintenance, and they have a simpler powertrain. The drivers of battery-electric vehicles as well as plug-in hybrid vehicles paid only 3 cents per mile during the course of their vehicle’s life in comparison to 6 cents per mile for traditional vehicles. However, the electric vehicle experience isn’t always positive. CNET is an affiliate of the Red Ventures company, reported on a 2021 study of We Predict that found . While it’s true that drivers are able to avoid the cost associated with regular maintenance such as oil change and basic inspections, EV parts are much more expensive when it comes time to repairs. This means that more maintenance time and more expensive replacement parts can make driving electric just as, or pricier more expensive than driving gasoline-powered vehicles. Moreover, electric cars can be more efficient than traditional gas-powered vehicles due to the speed of tech advancements however, the present demand for EVs has helped stabilize prices at the moment. How do you finance an electric vehicle procedure of financing an electric car is a lot like the traditional gas-powered vehicle. It is important to follow the same procedures you typically would, and be aware of the importance that your credit score and past have to carry. As mentioned the electric vehicle also comes with potential state and federal benefits that you wouldn’t traditionally be able to access. One of them is an incentive of $7,500 for new, certified plug-in as well as fuel-cell vehicles. If you buy a new vehicle in 2023, you may also be eligible to claim an government tax deduction . The vehicle cannot be purchased at a price greater than $25,000. If the vehicle is eligible you may claim tax credits of up to 30 percent of the sale cost, with a maximum of $4,000. Both federal tax credits come with income limitations and vehicle requirements, so be sure you and your future EV qualify before diving in. In addition, you may be eligible for the state tax credit based on where you live. Questions to ask yourself before buying an electric vehicle Owning or operating an electric vehicle has its own set of needs that you might not have encountered in the past. Consider these questions. 1. What is the range of your vehicle? It is essential to determine the distance your car will take you for both your typical commute and your travel habits. Energy.gov lists that the 2021 model year vehicles that have possible ranges of as long as 405 miles. Fortunately, drivers will likely have lower levels of «range anxiety» as vehicles catch up with the latest technology. However, it’s important to check your needs by factoring in your usual commute as well as anticipated leisure activities. 2. Should I rent before buying an electric car? «Leasing an electric car can be a good option to test the waters of EV ownership,» Moody says. The cost is typically lower in a month-to-month arrangement and usually includes a warranty. If you’re on side of electric vehicles, consider leasing one to check out the experience and feel. 3. Do I have access to car chargers in my region? While it is true that the Electric Vehicle Council found that around a third of electric vehicle drivers can charge at home, many drivers do not enjoy the convenience of having the Level 2 charger. That’s okay. A lot of EVs can now be charged to charge from any outlet that is electrical, but it could take the whole night or longer to get fully charged. That said, you might need a speedier charge at times. There are many EVs take around 45 minutes to reach the 80 percent capacity of their batteries at the fastest charging station. To determine where you might be able to get a faster charge take a look at the map, which shows charging stations close to. Make sure that the charging stations that you are planning to frequent will work with your vehicle you’re looking at. Think about an electric car when you’re shopping for your next vehicle If you’re wondering, is an electric car worth it? As with other luxury vehicles, EVs can carry higher initial costs and owners must have solid credit scores to enjoy the low rates of interest. However, as the industry expands and more mid-tier options spring on the market, more motorists can reasonably look into electric alternatives. Are you among that 36 per cent of Americans considering electric? Moody suggests aiming to find the sweet spot by buying lightly used — anything in the 3-to-5-year range — to enjoy a lower cost and an adequate quantity of warranty coverage.
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Authored by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers to navigate the ways and pitfalls of taking out loans to purchase an automobile.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances through providing precise, well-studied information that breaks down otherwise complex topics into manageable bites.
Auto loans editor
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