Electric Car Leasing vs Buying: What’s the best way to finance your EV?
Key Insights
Salary sacrifice schemes can reduce EV costs by 20-50% compared to traditional leasing, as payments come from pre-tax income, lowering both income tax and National Insurance contributions.
Leasing transfers depreciation risk to the leasing company and provides access to newer battery technology every 2-4 years, while buying means absorbing 15-35% depreciation in the first three years.
When buying an EV outright (average cost £49,818), you gain complete ownership with no mileage restrictions and freedom to customize, but face higher upfront costs and maintenance responsibility.
Switching to an electric car is a significant decision and one of the best ways to lower your carbon footprint, but how you get into one matters. There are several ways to start driving electric, with the two most popular being leasing or buying. Both options have their positives and negatives.
Let’s break down some of the key differences between leasing versus buying an electric car, whilst also considering how salary sacrifice fits into this.
Understanding Your EV Financing Options
Making the switch to an electric vehicle represents more than just a change in how you fill up your car - it's a significant financial decision that deserves careful consideration. As the EV market continues to grow, so do the options for bringing one home.
Whether you're looking to own your vehicle outright or prefer the flexibility of a more temporary solution, understanding the full spectrum of financing alternatives will help you make a choice that aligns with both your environmental values and financial situation.
Buying An Electric Car
When you buy an electric car, you gain complete ownership of the vehicle once all payments are fulfilled. This traditional approach is still popular. According to a study conducted by InsuretheGap.com, two-thirds of British drivers buy their car outright.
What Does Ownership Mean?
Owning your electric vehicle means you hold full title to the car, granting you several distinct advantages:
Complete asset control: You can sell or trade in your vehicle whenever you choose.
Freedom to customise: From aesthetic modifications to technical upgrades, the vehicle can be personalised to suit your preferences.
No mileage restrictions: Drive as much as you want without incurring penalties.
Long-term equity: Unlike leasing, where payments never translate to ownership, buying builds equity in an asset.
Financing Options For EV Purchase
When deciding to buy an electric car, you have several financing pathways available:
Outright Purchase: Paying the full amount upfront is the simplest option because it eliminates interest costs and monthly payments. This approach requires substantial initial capital but offers immediate full ownership.
Car Loans: Traditional auto loans typically feature fixed monthly payments over 3-7 years. You own the vehicle outright after completing the loan term, with interest rates varying based on your credit history and market conditions.
Personal Contract Purchase (PCP): This popular financing method involves:
An initial deposit (typically 10-20% of the car's value),
Lower monthly payments over a fixed term (usually 2-4 years),
A final "balloon payment" option at the end of the term,
The choice is to either make the final payment and keep the car, trade it in for a new vehicle, or return it to the dealer.
How Much Will An EV Set You Back?
Of course, one of the primary considerations for EV owners is the upfront cost. According to recent market data:
The cheapest EV starts at around £7,695, and luxury models can go above £100,000. If you’re looking for a luxury EV, like a Tesla, Porsche, Audi or Mercedes will set you back £77,000 on average.
One of the main barriers to EV adoption is the higher initial purchase prices compared to petrol or diesel cars. This gap is expected to narrow as manufacturing scales up, more competitors enter the market and as battery technology advances.
Leasing An Electric Car
Leasing refers to a type of finance that is essentially a long-term rental of a car (in this case, an electric car). Typically, you sign a contract committing to a monthly fee, which will give you full use of the car for a fixed time, usually between two and four years. Once the contract is up, you will then return the car to the leasing company.
Buying Vs Leasing: Costs Compared
Lease prices can vary, depending on the car, the length of the lease, and the mileage included. However, once you have signed up for a lease, the payments are fixed, so you know what you will pay each month. No nasty surprises!
Whereas, if you buy a car, you have a significant upfront payment, which can mean having to compromise on the car you can get for your money.
At The Electric Car Scheme, you benefit from accessing leases on any electric car, both new and used. We also work with a variety of lease providers, which means you can access the best lease deals in the market at any time.
Also, the tax savings available through The Electric Car Scheme mean the monthly cost of the lease to you is significantly lower compared to leasing it yourself. This can tip the balance in favour of leasing rather than purchasing!
When you lease a car, a leasing company purchases a new vehicle on your behalf, becoming its owner and registered keeper. The lease company then leases the car to you or your employer, allowing you to use it for the duration of the lease agreement. At the end of the lease term, you return the car to the lease company. However, one drawback of leasing is that you are typically not allowed to modify the car during the lease period.
Salary Sacrifice Schemes Explained
With a car salary sacrifice scheme, the employee exchanges a portion of their pre-tax salary for a non-cash benefit (which in this case is an electric car).
How Salary Sacrifice Schemes Work
Salary sacrifice for EVs is a financial arrangement between an employer and employee where you agree to reduce your gross salary in exchange for an electric vehicle.
Your employer then leases the car on your behalf, with the monthly payments deducted directly from your pre-tax income. This creates a formal change to your employment contract, with the vehicle effectively becoming part of your compensation package rather than a separate expense.
How Do The Tax Benefits Work?
The primary advantage of salary sacrifice lies in its tax efficiency. Since payments come from your gross salary:
You pay less Income Tax because your taxable income is reduced,
Both you and your employer pay lower National Insurance Contributions,
Electric vehicles currently benefit from exceptionally low Benefit-in-Kind (BiK) tax rates compared to petrol or diesel alternatives.
These combined tax advantages typically translate to savings of 20-50% compared to privately leasing or purchasing the same vehicle, making premium electric cars accessible to a wider range of drivers.
How It Differs From Standard Leasing
While both options involve monthly payments rather than outright ownership, salary sacrifice differs from standard leasing in several key ways:
Payment source: Salary sacrifice payments come from pre-tax income, while standard lease payments come from your net (after-tax) income.
Contract holder: With salary sacrifice, your employer holds the lease contract with the leasing company, not you.
Tax treatment: Salary sacrifice benefits from significant tax advantages not available with direct leasing.
Bundled services: Salary sacrifice schemes often include maintenance, insurance, and roadside assistance within the reduced monthly payment.
Employer involvement: Standard leasing is a direct agreement between you and the leasing company, while salary sacrifice requires employer participation.
These differences make salary sacrifice particularly attractive for employees of participating companies who want to maximise the affordability of driving a new electric vehicle.
Comparison: Leasing Vs Buying An EV
| Factor | Leasing | Buying |
|---|---|---|
| Initial Costs | Lower upfront payment - typically 3-6 months' lease payment | Higher upfront cost |
| Monthly Payments | FIxed monthly payments, typically £250-£600 depending on the vehicle | Higher monthly loan payments if you're financing, none if bought outright |
| Ownership | No ownership. The vehicle has to be returned at the end of the lease | Full ownership after financing is complete, or immediately yours if you buy it outright |
| Tax Benefits | Significant savings through salary sacrifice | Standard VAT benefits when purchasing for business use |
| Maintenance Costs | Often included in the lease package and cost | Owners responsibility - can be as much as £1,000 annually |
| Battery Technology | Access to the newest battery technology every 2-4 years | Stuck with the same battery technology until the car is sold |
| Mileage Restrictions | Typically limited to 8,000 to 15,000 miles annually with excess charges | No restrictions on mileage |
| Customisation Options | Limited initial configuation. | Complete freedom to modify or customise |
| Vehicle Age | Always driving a new vehicle (0-4 years old) | Vehicle ages over time, technology becomes outdated |
| Depreciation Risk | No depreciation risk to driver | Owner absorbs 15-35% depreciation in the first three years |
| End of Term | Return vehicle and lease another, or walk away | Get to keep the vehicle, sell-in or trade it. |
| Insurance Requirements | Comprehensive coverage required | Minimum coverage acceptable after financing completed |
| Early Termination | Potentially expensive penalties | No penalties, but may have a negative equity if selling early |
Factors To Consider When Deciding What’s Best For You
When deciding whether leasing is right for your electric vehicle journey, consider these important factors:
Depreciation
Unlike real estate, vehicles typically lose value over time. New electric cars can depreciate approximately 60% within their first three years at average mileage rates, with premium brands like Mercedes and Tesla often experiencing steeper depreciation curves.
Leasing transfers this depreciation risk to the leasing company, as the expected value loss is built into your monthly payments. However, if you plan to keep a vehicle long-term (7+ years), buying might prove more economical once the steepest depreciation period has passed.
Warranty Cover & Repairs
Both leased and purchased new electric vehicles come with manufacturer warranties, typically covering major components for 3-8 years.
The primary difference emerges in long-term ownership - leasing ensures you're always within the warranty period, while buying means eventually covering repair costs yourself. For both options, any accidental damage remains your financial responsibility. Consider your comfort level with potential repair costs when making your decision.
Mileage Considerations
Leasing agreements include mileage limits (typically 10,000-15,000 miles annually), with excess mileage fees upon return. When purchasing, higher mileage reduces your vehicle's resale value but incurs no direct penalties. Honestly assess your driving patterns - if you consistently drive long distances or have an unpredictable commute, ownership might offer greater flexibility and potential long-term savings.
Financial Qualification Process
Most leasing arrangements require credit checks to ensure payment reliability. This can present a barrier for those with limited credit history or lower credit scores. Some employer-based programmes, like salary sacrifice schemes, may streamline this process, potentially making leasing more accessible. Consider your current financial standing and credit profile when exploring options.
Technology Adaptation
Electric vehicle technology is evolving rapidly, with significant improvements in range, charging capabilities, and features with each generation. The Nissan Leaf, for example, has more than doubled its range capability since 2015. Leasing allows you to upgrade to newer technology every few years without navigating the resale market. For those who prioritise having the latest innovations, leasing offers a straightforward path to regular upgrades.
Early Termination Flexibility
Both leasing and buying present different challenges if your circumstances change. Leasing typically involves early termination fees if you need to end the agreement prematurely. Ownership provides the flexibility to sell at any time, though market conditions may affect how much of your investment you recover. Some salary sacrifice schemes offer specific protections against early termination penalties, which may be worth considering if you anticipate potential life changes.
This balanced assessment of leasing considerations should help potential EV drivers make an informed decision based on their unique circumstances, driving habits, and financial situation rather than assuming one approach works best for everyone.
Factors To Consider When Choosing Between Leasing & Buying
Not only should you consider the positives and negatives of leasing or buying, but you also need to consider how it will work for you - whether you are intending to grow your family or go on a road trip. Here are some things you should consider before taking the leap to electric.
Financial Considerations
There are some financial considerations to be made:
Upfront costs
When comparing the long-term cost-effectiveness of buying or leasing an electric car, you need to consider the initial costs and total ownership costs. Buying outright means higher upfront expenses, including the purchase price, tax and registration feeds, it does often result in lower total ownership costs throughout the vehicle’s lifespan. This is because of lower interest charges and the absence of lease-end fees.
Leasing does offer lower initial costs, the total expense can be higher because of the monthly lease payments. However, leasing allows access to newer technology with an option to upgrade at the end of the lease term. Ultimately, the decision between buying and leasing depends on individual preferences, financial circumstances and long-term goals.
Monthly Payments
Buying a car outright means owners may benefit from lower interest charges and financing costs compared to leasing. While leasing involves financing charges within the monthly lease payments, buying outright can allow owners to secure financing at potentially lower interest rates, especially if they have a good credit history. This can result in significant savings over the term of the loan, reducing the total cost of ownership.
Owners also have the flexibility to choose various financing options, like longer loan terms or paying off the loan early, depending on their financial situation and preferences.
Lifestyle And Driving Habits
You should assess your typical driving patterns, including the daily commute distance, frequency of long-distance travel and expected mileage. This assessment will help you determine whether leasing, with its mileage restrictions and fixed lease terms, aligns better with your driving needs and preferences or if the flexibility of ownership is more suitable.
You should also consider your plans - are you likely to need a different car soon, like the size of your family or job requirements? By taking these factors into account, you make an informed decision that best suits your circumstances.
What Are The Disadvantages Of Leasing An Electric Car?
Although there are many positives to leasing an electric car, there are some downsides.
Mileage Restrictions
Leasing an electric car often comes with mileage restrictions, limiting the number of miles you can drive annually without incurring additional fees. These restrictions are typically set at 10,000 to 15,000 per year (although some leases do offer higher allowances). Exceeding your agreed-upon mileage can result in charges at the end of the lease term which is far from ideal - you can avoid this by accurately estimating your driving habits beforehand.
Mileage restrictions can be a drawback for those with extensive commutes, but for people who mainly use their car for town driving, this may not be a concern. Our top tip is to accurately estimate how many miles you do and use that figure to guide you.
Limited Options For Customisation
Leasing an electric car can mean there are limited opportunities to customise your car. The Electric Car Scheme’s quote tool allows you to choose your trim or upholstery along with your paintwork. Buyers have the freedom to modify their cars to suit their preferences, whereas lessees are more confined to the terms outlined in the lease agreement.
This limitation may not be a concern for some drivers, but those who value individuality or specific aesthetic choices may find leasing less appealing.
Long-term Cost Considerations
It is essential to factor in the long-term cost considerations. Leasing offers lower monthly payments compared to buying, lessees should be mindful of potential expenses at the end of the lease term. These costs may include excess wear and tear fees, mileage overcharge fees and any additional costs for returning the vehicle in less-than-ideal condition. Lessees do not have an asset to sell or trade in at the end of the lease, potentially resulting in a continuous cycle of lease payments.
What Are The Benefits Of Buying An Electric Car?
Ownership
This may seem obvious, but if you buy your electric car you own it. Unlike leasing, if you buy your electric car you hold full ownership rights and have the opportunity to gain equity in the vehicle. For instance, owning an electric car outright provides the opportunity to sell the vehicle at any point and gain a portion of the initial investment back or trade it in towards the purchase of a new vehicle. You also do not need to worry about incurring charges once your lease term is up!
Customisation
The freedom to customise your electric car is an advantage, unlike leasing, where lessees are often restricted in their ability to modify the vehicle. From selecting personalised exterior colours to upgrading interior features and installing accessories, owners have the freedom to tailor their electric car to match their preferences and lifestyle. The level of customisation fosters a sense of ownership, making it feel like it’s truly their own. In some instances, customisation options can also enhance the resale value of the vehicle, as personalised features may appeal to potential buyers seeking a unique driving experience.
Exploring EV Salary Sacrifice Schemes
Salary sacrifice schemes offer an innovative approach to electric vehicle access through employer benefits programs. These arrangements allow employees to exchange part of their pre-tax salary for an electric vehicle, resulting in potential savings of 20-50% compared to traditional leasing. The tax advantages come from reduced Income Tax and National Insurance payments, leveraging the current low Benefit-in-Kind rates for electric vehicles. Learn more about BiK rates or see how tax incentives work.
Beyond cost savings, these programs typically include comprehensive packages covering servicing, maintenance, insurance, road tax, and breakdown assistance - leaving you responsible only for charging costs. Companies increasingly offer these schemes not just as financial benefits but as part of their environmental initiatives, with research showing nearly half of employees feel more motivated when working for employers with green credentials. Calculate your potential savings or explore available EV models to see if salary sacrifice might be your best option for getting into an EV.
Last updated: 29.03.25
