Is it Better to Lease or Buy an EV?
Leasing versus buying has long been a debate in the car-buying world. Adding EVs into the mix adds a few more chips to the leasing side of the argument. Here’s why.
If you follow many financial gurus, the only path to having a vehicle in your driveway is through buying it, and in a perfect world, you’d pay cash. But people who like having the newest EV technology or get bored with their vehicles easily see leasing as a better option, especially because your monthly payments are often less.
Throwing electric vehicles into the mix makes things more interesting because the technology—including range and battery life—is constantly evolving. Add to that range anxiety and skepticism about the longevity of EVs, and leasing looks much more attractive. It allows people to sample the EV market without committing to a lifetime of public charging stations and worries about battery replacements.
However, depending on your financial perspective, there are benefits to both leasing and buying an electric vehicle. Here are just a few of the things you should consider before deciding to lease or buy an electric car.
Benefits of Leasing an Electric Car
Advantages of Buying an Electric Car
Factors to Consider When Choosing to Lease or Buy
Government Incentives and Tax Credits
Maintenance and Warranty Coverage
Benefits of Leasing an Electric Car
Lower upfront costs:
The biggest benefit of leasing an EV is the lower up-front costs. Leased vehicles often carry a lower down payment as well as lower monthly payments. According to Experian, a typical three-year EV lease is about $88 less per month than a loan payment. That adds up to a savings of $3,168.
Access to the latest technology:
If you’re one of those people who get a new smartphone every year, then the idea of having access to the latest tech is probably very appealing. By leasing EVs, you’ll always be in line for the latest and greatest.
This includes things like hands-free highway driving, in-car gaming (while in park, of course), Google operating systems, over-the-air updates, streaming services, downloadable digital display customizations, and even Artificial Intelligence.
No hassle of selling or trade-ins:
Some vehicles lose around 15% to 25% of their value within the first year of purchasing them, so if you’re hoping to get a good trade-in value, this could be a big deal for you. At the end of the lease, assuming you didn’t go over miles and don’t want to buy out your lease, you simply hand in the keys and walk away. You don’t have to worry about trying to sell it privately or argue over trade-in values. No fuss, no muss.
Incentives & Rebates:
Many EVs qualify for a rebate under the Inflation Reduction Act if you lease them but not if you buy them. There is a lot of confusion over the Inflation Reduction Act of 2022, and most of it centers around which vehicles qualify for the federal EV tax credit (which ends on September 30, 2025).
With an EV lease, it’s fairly simple. None of the restrictions for final assembly, battery sourcing, and price caps apply to leased vehicles. So, they all qualify for the credit.
However, since leased electric cars are considered commercial vehicles under IRS regulations, the credit goes directly to the leasing company (the dealership or the automaker), not the lessee. In many cases, the leasing company will then apply the credit to a down payment or some other form of credit put towards lease payment, but you will need to verify this.
Advantages of Buying an Electric Car
Ownership and long-term savings:
If you are someone who drives a car “into the ground,” buying a new EV might be the best option for you. You’ll have complete control over the car, including the ability to sell it whenever you want.
Plus, there is the additional advantage that eventually, you’ll have no car payment when the car loan is paid off, and when you do decide to get a new car, you can use the value of the current car toward a downpayment for the new model.
Customization and personalization:
Leased cars are often WYSIWYGs (What You See Is What You Get). They are pre-packaged with popular features and colors (think gray, black, and white), and you have little ability to make a special request for unusual options. When you buy a new electric vehicle, you have the option to order the exact color you want and customize the features and options.
No mileage restrictions:
The biggest benefit to buying, however, has to be the lack of a mileage limit. You don’t have to stress about the number of miles you’re putting on your vehicle each year. Most lease contracts limit drivers to 15,000 miles or less per year, and if you go over your mileage, you’ll be subject to extra fees, often billed per mile that you’re over the limit.
Factors to Consider When Choosing to Lease or Buy
Financial considerations (budget, credit score):
One of the biggest things to figure out before deciding to lease vs. buy is your budget. If you are looking for more features but need the lowest possible monthly payment, leasing might be the way to go. If you have cash to pay out of pocket or can afford higher payments, buying might be better for you. Whether you’re buying or leasing, dealers check credit scores; however, the higher your score, the better the lease deal or loan payment you’ll get.
Driving habits and distance:
If you are a high-mileage driver, a lease deal might not be possible for you. Most leases have a three-year term, and the average mileage allowance is between 10,000 to 15,000 miles. So, you’d have to drive less than 30,000 to 45,000 miles in three years, which averages out to between 192 and 288 miles per week.
Resale value and depreciation:
According to Kelley Blue Book, the average MSRP of a new EV is about $56,000. Considering that the average car depreciates by about 40% in 5 years, that means the resale value drops to $22,400 when it’s time to sell.
Trade-in value will be even less. So, if you’re looking at a new car as an investment, you’ll want to consider what the vehicle will be worth when you want to sell it and if you’ll have the auto loan paid off so you can apply the total cost to the downpayment of a new vehicle.
Government Incentives and Tax Credits
Incentives:
Outside of federal tax credits, there are a host of state incentives that go along with buying an EV. These incentives include credits toward home chargers, reduced vehicle taxes, single-occupant carpool-lane access stickers, and registration-fee exemptions.
However, incentives will vary greatly by state, so you’ll have to do some research. For example, states like California offer up to $30,000 in rebates to low-income residents for purchasing new EVs, but other states like Alabama may only offer time-of-use electricity discounts.
Tax credits for electric vehicle owners:
In 2024, there were EV tax credits for buying both new and used EVs, but they are dependent on income, battery component production, material sourcing, final assembly, and vehicle price—all of which can be confusing. The maximum federal credit is $7,500. Plus, plug-in hybrid (PHEV) vehicles and fuel cells can also qualify. For an up-to-date and complete list of vehicles that qualify and corresponding credits, you’ll want to visit the website www.fueleconomy.gov.
Potential savings:
Currently, EV owners can get up to $1,000 in tax credits for installing a home charger. That’s in addition to the cost difference between electricity and gas usage. The average monthly cost of charging an electric vehicle at home is about $63. In contrast, most Americans spend about $179 per month on gas.
Maintenance and Warranty Coverage
Cost of maintenance and repairs:
Generally, the cost of maintaining an EV is less than that of a gasoline vehicle because there are no oil changes or spark plugs to replace, so this is a benefit whether you are leasing or buying. While some routine maintenance may be included in the lease payments, the lessee is typically responsible for maintenance and repairs, just like an owner would be.
Furthermore, if you don’t properly maintain a leased vehicle, you could be subject to lease fees when turning in the vehicle if the leasing company sees excessive wear and tear.
One big expense both owners and lessors should expect is tire replacements. Tires on an EV typically wear faster than on gasoline vehicles, and experts recommend they be replaced every 30,000 to 40,000 miles. Depending on lease terms, this could fall on the lessee to replace.
Warranty coverage for different components:
Federal law requires EV batteries to come with a warranty that lasts eight to 10 years or 100,000 miles. While this will more than cover someone who is leasing, someone who is buying an EV will want to read the warranty’s fine print.
Some automakers, such as Tesla and Rivian, offer coverage that goes beyond the federal mandate. Additionally, you need to know if the warranty only covers complete battery failure or if it applies when the battery capacity drops below a certain threshold.
“Bumper-to-bumper” warranties will likely be separate from battery warranties and will often cover fewer years and miles. For lessees, these usually last the life of the lease period, and extended warranties can be added if you opt to buy the vehicle after the electric car lease is up.
Availability of service centers:
A dealership licensed to sell EVs is also equipped to service EVs. This means specialized equipment and service technicians. So, if you’re buying an electric Ford, Hyundai, or Kia from a specific dealer, you can always go back to that dealer for service.
Problems will arise if you buy an EV from one dealer and then move to a new city or state that doesn’t have a dealership that sells EVs. Non-dealership service centers that can work on EVs are growing but not yet prolific, so it’s something you’ll want to research for your specific area.
If you buy a Rivian or Tesla, which don’t have traditional dealership networks, it can be trickier. Both automakers provide mobile service in markets where their vehicle are sold, and Tesla does have some physical service center locations. So, understanding their service arrangements should be part of your car purchase or lease process.
