Posted on 29 Jul 2022

Electric cars and SUVs are growing in popularity. Automakers are rolling out new models at a rapid clip, while drivers are looking for alternatives to skyrocketing gas prices.

A key decision you'll have to make when getting an electric vehicle (EV) is whether it's a better idea to lease it or buy it. Every car shopper faces the leasing versus buying decision, but it's a bit more complicated for electric vehicles.

Both approaches have pros and cons, which we'll explore in this guide.

Pros of Buying an Electric Car

When you buy a car, it comes with several benefits, including owning it outright once you pay off your car loan. For electric vehicles, there are a few additional benefits.

You Get the Full Tax Credit

When you purchase a car, the full value of the Federal Electric Car Tax Credit, plus state, local and utility incentives, belongs to you. Leasing companies may or may not pass the full amount of any incentives along to you. Incentives can knock $10,000 or more off the price of an EV, though you may have to wait until you file your next year's taxes to see the savings.

No Mileage Limit

When you own a car, there's no limit on how far you can drive. While it's harder to rack up tens of thousands of miles per year on an EV than on a gas-powered car, going over a lease's strict mileage limit can get very expensive, very quickly.

It's Yours to Customize

Car owners can customize cars as much as their creativity allows. Leased vehicles must be left just as they were when they left the dealer's showroom. If you make changes to a leased car, you have to reverse them before the lease ends.

You Can Take Advantage of Buying Incentives

While many electric cars are super popular and aren't available with financing or cash-back incentives, some EVs see frequent deals designed to increase the pace of sales. The right rebate or low-cost financing deal can save you thousands of dollars in the long run.

On our new car purchase deals page, you'll find the best financing and cash-back deals available this month.

You Can Change Your Mind

If you decide after a year or so that you don't like your purchased electric car, or the electric car lifestyle in general, you can sell it to someone else. With a lease, your options of terminating the contract are limited. You might be able to sell the car or transfer your lease, but there's no guarantee you'll be able to.

EVs Tend to Have Long Warranties

The basic warranty coverage on an electric car tends to mirror the coverage of a brand's gas-powered vehicle warranty. Electric vehicles, however, come with federally mandated warranties that cover their batteries for at least eight years or 100,000 miles. The batteries in California-based EVs enjoy even longer warranty coverage.

Buyers of Kia, Hyundai and Genesis electric cars receive 10 years or 100,000 miles of powertrain coverage that will take care of any defects in systems that propel the vehicle.

You Can Finance Anywhere

Car buyers can get their auto loans wherever they want and shop the marketplace for the best interest rate. Savvy buyers know to have a pre-approved loan offer in hand before they head to the dealership. While the dealer may be able to find a loan with a better rate, they'll have no incentive to try unless they know they have an offer to beat.

When you lease a car, you'll have to negotiate the contract's interest rate – called the money factor in leasing – with the dealer you're leasing the electric vehicle from.

Cons of Buying an Electric Car

Buying an electric car comes with some pitfalls that can slap you in the wallet as the vehicle ages.

Batteries and Range Will Degrade

Over time, the capacity of an EV's battery pack will decline. That, in turn, will reduce the distance you can drive on a single charge. How much it degrades is based on many factors, including where you charge it, the environmental conditions where you drive and how often you charge.

If your EV's batteries degrade enough to affect your vehicle's market value but are outside of warranty coverage, you'll be saddled with the decline in value.

An EV's Future Value is Uncertain

Few technologies are advancing as fast as electric vehicle tech. Simply put, there's no way of knowing how much the EV marketplace will change over the next several years or how much value will exist in an EV purchased today.

While it's possible that an EV's value will remain strong, improving technology, performance, charging speed and range could also make today's EVs nearly worthless in the used car marketplace if EV tech advances by a sufficient amount in the coming years.

Post-Warranty Issues Belong to You

If you own an electric car and keep it beyond its warranty coverage, you can face expensive repair costs if something fails. Beyond their batteries, which come with long warranties, EVs also have costly components, such as massive infotainment screens, sophisticated electronic drive systems and loads of high-tech safety features.

Pros of Leasing an Electric Car

There are several positive things about leasing a car. Some take on greater importance when you lease an electric car or SUV.

You're Not Locked Into Aging Technology

One of the most important advantages of leasing an electric car rather than buying one is you can avoid locking yourself into today's technology. You avoid the financial risk of owning a vehicle that's outpaced by newer capabilities and isn't worth much when you go to sell it.

Each year brings new EV models with greater range, faster charging, new features and enhanced performance. Purchase the wrong EV today, and you could find yourself with little equity when the time comes to upgrade.

You Can Remain at the Cutting Edge

When you lease a new car, you'll be able to upgrade to the latest technology as soon as your current lease ends. You simply take your old car back to the original dealer or another of the brand's franchised new car dealerships. You can then negotiate a lease on an updated model and enjoy the latest features.

Tax Credit Savings Can Be Immediate

Many electric car tax incentives, including the Federal Electric Car Tax Credit, aren't realized until you file your next year's taxes. If you bought an SUV in January 2022, for example, you won't see the credit until file your 2022 taxes, which will likely be January 2023 at the earliest.

If your leasing company, which would get the credit, figures the tax credit's value into the lease's price, you'll see the incentive reflected in every month's payment, including those in the early months of the lease. However, it's important to note that not every leasing company will forward the savings from incentives to lease customers.

Avoid Battery/Warranty Issues

Most electric vehicle lease contracts are written for two or three years. Within that time, it's unlikely you'll have any problems that aren't covered under the automaker's new vehicle warranty. The longer you have a vehicle, like when you own it, the more risk you'll face an out-of-warranty repair bill.

You Can Profit if It Doesn't Depreciate

An electric vehicle's expected value at the end of the lease (its residual value) is set at the start of the lease. If the vehicle's actual value is lower than the residual value, you'll just want to return the car to the dealership. If it's higher, you have an opportunity to make some money.

Instead of returning a higher-than-residual value vehicle at lease end, you can buy it for the buyout cost in your contract, which is pre-set at the beginning of the lease and usually close to the residual value. You can then resell the vehicle at its higher-than-expected value and pocket some cash.

You Can Take Advantage of Loyalty Deals

When you have a leased vehicle, you'll find that automakers will offer you loyalty discounts to stay with the brand or conquest deals to get you to switch from one brand to another. These are not offered to non-lease customers.

Cons of Leasing an Electric Car

While leasing an EV has benefits, it's not without its potential pitfalls.

You May Not Get the Advantage of Tax Credits

Many leasing companies pass the value of tax credits and other subsidies on to customers by lowering the lease cost, but some do not. Be sure to check the details of any lease you're considering to ensure you're getting all of the possible incentives. The difference between getting the subsidies and not getting them can be substantial.

A Mileage Cap May Limit Your Travel

New car leases come with strict mileage limits. Exceed the cap, and the amount in excess mileage charges you'll have to pay at the end of the lease will quickly climb. Depending on the car, it could cost you between about 15 and 50 cents per mile if you exceed the mileage limit.

While the range of electric cars makes it tougher to exceed mileage limits than with a gas-powered vehicle, some leases are written with extremely low mileage caps that can easily be breached.

You Can't Customize a Leased Car

Are you thinking about adding fancy wheels to that high-performance electric sedan or auxiliary lights to your new electric SUV? If it's leased, think again. When you return the vehicle at the end of the contract, it needs to be just like it was at the start of the lease, outside of normal wear and tear. You'll have to pay to revert the car to that condition, even if you think those changes you made added value to the vehicle.

What You Do With Your Car May be Limited

Many leases have strict rules about what you can do with the car. You may not be able to drive it for business or be restricted from using it for a ride-hailing company such as Uber or Lyft. If you rent it out through a company such as Turo, you may violate the terms of your lease and risk default.

You Need Great Credit to Lease a Car

While you can get a car loan with merely decent credit, you need excellent credit to lease a car. That's especially true if you're pursuing an automaker's special lease deal. It's critical that you check your credit score well before you embark on car shopping, so you can be confident you'll qualify for the best deal.

A Lease is a Hard Contract to Escape

If you are not absolutely sure of your job and income stability, you do not want to lease a car. A lease is a contract that can be hard to get out of without doing severe damage to your credit score. Our guide to getting out of a car lease early shows the complexity of terminating a lease before it's scheduled end.

Benefits of Buying or Leasing an EV

Whether you buy or lease, electric vehicles have several advantages over vehicles with internal combustion engines.

Lower "Fuel" Costs

Electric vehicle owners who charge at home or use workplace charging can save a tremendous amount of money compared to filling a car with gas. When you're on the road using DC fast-charging stations, the cost of recharging climbs substantially, but it's generally still lower than gas or diesel fuel.

Our guide to electric car charging costs shows you how to predict how expensive it will be to charge your EV.

Quiet Operation With Excellent Performance

Electric vehicles offer lively performance while operating so quietly they're required to have noisemakers to alert pedestrians of their presence. With the battery packs in most EVs installed below the cabin floor, they have low centers of gravity, providing excellent handling.

A Third Option: Subscribing

There's one more choice beyond buying or leasing an electric vehicle. A new option that's being offered is a new car subscription, which packages many of the costs of having a car into a single monthly payment.

The Care by Volvo program, for example, lets you get behind the wheel of a 2022 Volvo C40 Recharge for a fixed monthly fee that includes the factory scheduled maintenance, auto insurance coverage, roadside assistance and more. You can cancel the subscription after five months in most states.

Buying a Used Electric Car

Because leasing is popular with electric cars, there's a steady supply of two- and three-year-old models flowing into the used car market. While some retain high prices, many don't. Even with a degree of reduced battery capacity and range, a cheap used EV can make a fantastic commuter car with minimal operating costs.

When buying a used EV, you want to follow the same used car buying fundamentals as with any other used vehicle. That means getting a vehicle history report, getting the right used car financing and negotiating a fair price. One difference, though, is that you'll want to get your pre-purchase inspection performed by a mechanic who has a thorough understanding of electric vehicles.

More EV Shopping Tools From U.S. News & World Report

With dozens of new EVs arriving in dealerships or expected soon, finding the right choice for your needs and budget can be challenging. Our electric car, luxury electric car, electric SUV and luxury electric SUV rankings are designed to answer the questions shoppers have when they're in the market for an EV.

While the basics are the same, there are some differences between buying or leasing an EV and getting a gas-powered vehicle. Our guide to how to buy an EV takes you through each step in the buying or leasing process. Our guide to financing a car shows you how to save money on your auto loan.

One path to a great deal on a new car purchase or lease is taking advantage of the U.S. News Best Price Program. It connects shoppers with local dealers, offering significant savings with pre-negotiated prices, home delivery and online sales options.

Original article: Should You Buy or Lease an Electric Car?