Should You Lease An Electric Car? Or Is It Better To Buy?

DEC 4 2018 BY JIM GORZELANY 27

LEASING CAN BE A CHEAPER WAY TO GO, BUT IT’S NOT WITHOUT PITFALLS.

Leasing, rather than buying a new vehicle outright, has become increasingly popular in recent years. It now accounts for around 30 percent of all transactions and it’s easy to see why. Down payments and monthly outlays are usually lower than with conventional financing, and automakers often offer promotional lease deals with built-in cost reductions that are hard to beat.

While it virtually guarantees you’ll be making perpetual car payments, leasing an electric vehicle for two or three years can help ensure you’ll keep up with the latest technology. You’ll avoid the risk of owning what could be a comparatively obsolete model, or one that’s hampered by a degraded battery that might be difficult to sell five or more years down the road.

HOW EV LEASING WORKS

Leasing is like an extended car rental in which a consumer pays to use a vehicle for a specific period, which is usually two or three years. Monthly payments are based on the difference between a vehicle’s negotiated transaction price (this is called the “capitalized cost” in the contract) and what the vehicle is expected to be worth when the contract expires (its “residual value”), financed at the going rate of interest (referred to as either a “lease rate,” “lease charge” or “money factor”).

In the case of an EV, the leasing company usually claims the $7,500 federal tax credit and applies it directly to the transaction price to reduce a lessee’s monthly payments. This can actually be a better deal than purchasing an EV and having to wait until the following year to claim the credit on your income tax return (and at that you’ll lose some of the credit if you pay less than $7,500 in taxes).

Upfront costs typically consist of the first month’s installment and the down payment (called a “capitalized cost reduction”), which can run as much as several thousand dollars. As with financing, making a higher down payment will lower a lessee’s monthly payments, and vice-versa. In addition, lease agreements specify an annual mileage limit that can run anywhere from 10,000-15,000 miles. Settling for a lower mileage threshold will reduce your monthly payments, while receiving a higher limit will raise them.

The lessee typically pays for the sales tax, annual vehicle registration fees and taxes, maintenance and insurance, sometimes along with a nominal “acquisition fee,” and other costs.

When the lease is up, you can either simply return the vehicle to the dealer, or purchase it at a pre-determined cost. If the car’s residual value ends up being higher than the amount stated in the contract, you could buy the car and resell it at a profit.

EXAMPLES OF AUTOMAKERS’ EV LEASE DEALS

As of this writing in late November 2018, Chevrolet is offering a lease deal on the LT version of the Bolt EV with a sticker price of $36,620 for $399 a month for 36 months with $4,479 due at signing and a 10,000 annual mileage limit. (The down payment drops to $3,979 for current lessees of General Motors vehicles.) By comparison, if you finance the Bolt EV for six years at five percent interest with the same down payment, you’ll be making installments of $518, though you will still have some equity in the vehicle when it’s paid off.

Meanwhile, Nissan is leasing the Leaf with a hefty cash rebate built into the deal to slash the cost. They’re offering a Leaf that retails for $30,885 at $249 a month for 36 months with $2,929 due at signing and a 10,000 annual mileage limit. With the same money down and a six-year loan at five percent you’d make a $450 monthly payment.

If you’re looking to lease a Tesla, on the other hand, you’ll need deeper pockets. The Model S 75D with a retail price of $75,700 is going for $903 a month for 36 months with $12,037 due at signing and an annual 10,000 mile limit.

All of these offers include the aforementioned federal tax credit (which in Tesla’s case is set to phase out during 2019), but not options or fees; the Tesla quote includes sales tax and registration. Since these deals are subject to change, they’re presented purely for illustrative purposes.

HERE’S THE CATCH

Unfortunately, leasing a vehicle is not for everyone.

For starters, the best lease deals are typically limited to those having excellent credit. An applicant’s creditworthiness is based in large part on his or her “FICO” score. Consumers having scores in the 700-850 range will generally garner the most-favorable lease terms. Lessees who fall below the 620 mark are often considered “subprime,” and will be required to pay a higher interest rate and perhaps make a bigger down payment. If your FICO score is below 500, you’ll likely have trouble leasing a car at any cost.

What’s more, it may not be all sweetness and light when you return a leased vehicle to the dealership. At the least, you’ll be required to pay a “disposition fee” of a few hundred dollars to cover the cost of resale. You’ll also be assessed an “excessive wear and tear fee” if the vehicle is not in otherwise excellent condition. That means turning it in without dents, deep scratches, window cracks, or torn/stained upholstery, and with all accessories in good working order. You may want to think twice about leasing if you tend to be hard on a car, as reconditioning costs can add up quickly.

You’ll also need to be mindful of a lease’s mileage limits, as exceeding them can cost you plenty. Overage penalties can run anywhere from 15 to 35 cents per mile. That means having to pay between $1,500 and $3,500 if you turn in a leased vehicle with an extra 10,000 miles on the odometer. This may not be much of a factor if you’re leasing an EV with only a modest operating range for around-town use. However, if you’re considering a model that can run for 200 miles or more on a charge and suspect you’ll be exceeding the limit, you can usually purchase additional miles in advance at a discounted rate or simply negotiate a lease that grants a higher threshold in the first place.

Finally, be aware that auto leases are binding for the entire length of the agreement, and they can be difficult and/or expensive to terminate if your financial situation changes. You may want to reconsider leasing an EV if your finances or employment situation is on shaky ground. Traditionally, those who want to get out of a lease early are either required to lease another vehicle, have the first contract “bought out” as part of the deal, find someone to take over the remainder of the lease, or pay a hefty termination fee.

Source: MYEV.com

Categories: Buying Advice

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27 Comments on "Should You Lease An Electric Car? Or Is It Better To Buy?"

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Mil

I never really bought into the idea of car leasing. The way I see it is, it’s a more affordable way to pay for the worst years of a car’s depreciation.

If you’re the type of person who would buy a new car every 2 or 3 years anyway, then a lease is great. However, if you’re the type of person to keep a car for longer period of time and you’ve switched to leasing, then you might actually be spending more on cars than you used to. It’s just less obvious as the payments are spread.

I personally buy cars that are used. I typically buy cars that are 2 to 3 years old and keep them for about 3 years. That way, I’m changing cars every 3 years but not incurring the worst year’s of the cars depreciation. I still suffer from depreciation but it’s at a level that’s affordable and sustainable.

tester

That makes sense in normal situations, but EVs having federal and state tax credits in place tilts the scales quite a bit.

For example I’ve done the math and found that a good deal on an i3 lease is even more cost effective than buying one new. This also considers this specific car’s terrible resale value which penalizes those that buy (even used) FAR more than leasees.

Clive

Correct

REXtoCheckMate

I’m leasing an i3 primarily because Ford, my first choice, never improved the CMax. Honda, my second choice, did nothing after the Insight., the Prius Prime had it’s funny 20 miles of range and an uncomfortable interior. The Tesla Model 3 was not out.

I’m leasing for 3 years, to see what becomes available, and still today it only looks like Tesla is serious in the field.

After driving the Honda Insight, I know that the torsion beam “suspension” is there to punish green buyers. So, the Volt, Bolt and Leaf are off the list too.

jim stack

Buying used is a great way to save money. As Mil says the greatest depreciation is in the 1st few years. Most electrics drop very fast since the incentives helped buy it. I even got my 1st Tesla used. But for the 3 I had to buy it since there was no used. I’ll keep it for 10 years or more so it all works out.

Mark.ca

Let me change your mind….
I leased my eGolf for $4248 after credits, for 3 years. There is no way you can buy a $30k or even $20k car and only lose that little in depreciation. I’m always under bumper to bumper warranty and get to drive the cars with latest safety features and tech. There is alot to like about good leases.

Chad Kipper

As always it depends on your financial situation. Most consumers would be able to ‘afford’ a more expensive car with a lease due to the lower monthly payment this helps with EV adoption due to the electric premium. I would be curious to know if the leasing vs buying numbers are different for EV over gas cars.

Lou Grinzo
I would also suggest that anyone considering buying analyze their specific circumstances in detail. There’s lots of good information in this article on leasing, but for me it was a tough decision when I got my second Leaf (2018 SV). My wife and I knew the 60kWh pack Leaf was coming, but we also knew that a 40kWh Leaf would give us enough range that we really wouldn’t miss the delta. Plus, we’re planning on keeping it for more than 3 years. We had some unusual factors at play for purchasing a car, including a discount through my wife’s employer and a rebate on a ridiculously expensive heater repair on my 2013 Leaf. Combined with US federal and NY state incentives, I got a price that was several thousand dollars less than the price of a new Civic Si (roughly $25K locally). Add to that the lower M&P costs, and even with high depreciation it was still a good solution for us. Another piece of advice: Be very diligent about pushing dealers on lease and purchase offers. When we got our 2013 Leaf I had to fight with the dealer to get the lease price Nissan was advertising on their… Read more »
Clive

That crappy Nissan Dealer experience is exactly why dealing with Tesla is so refreshing.

Lou Grinzo

And, as I indicated, the big problems for me with a Tesla were price and lack of product availability in a relevant time frame. You want to see Tesla sell a bazillion cars? Watch what happens if/when they sell the infamous $35K M3 with very little backlog.

REXtoCheckMate

As this is a story about leasing, don’t forget there are no leases available from Tesla on a Model 3. Expect demand to 3X once leases become available. As the car is in the $50,000 range a 3 year lease does wonders for affordability.

Clive

Leasing is usually best for a heavy depreciating item like an electric car.

Mike

How so? When leasing, you’re paying for said deprecation. You’re using up the most expensive years of the car’s lifespan.

Clive

As long as you are not getting a crappy lease deal your much better off.

Just look at the crazy low resale values and then you might understand.

There are a few exceptions, but generally not many.

Spider-Dan

And it’s not just depreciation; the technology in the EV market is advancing so quickly that it really makes buying an EV pretty questionable unless you intend to drive it into the ground.

For example, I leased a 2013 Gen1 Volt. When the time came to turn it in, I had two options:

1) buy out this three-year-old Gen1 Volt with ~36k miles (and no remaining bumper-to-bumper warranty) for $26k
2) buy a brand new 2017 Gen2 Volt with more EV range, better MPG (on regular gas instead of premium), more seats, and a full bumper-to-bumper warranty for $28k (after rebates and credits)

That’s a no-brainer.

God/Bacardi

Sigh, the usually “leasing is never a good idea” and “why doesn’t the EV give me back the full federal tax credit?”
Generally, if you can do a zero down deal and the payment is less than 1% of MSRP AFTER the federal credit, you got a good lease which isn’t always the best for everyone…

Clive

Technically you have to put something down to start a lease. And if you don’t know what you’re doing it’s not always easy to score a great deal.

mxs

Leasing was a no-brainer for me … needed to see where the technology is going and how is it to live with EV in the first place. I was pretty sure, I will return it after 3 years … now I am not so sure.

First of, I like it more than I imagined I would have, secondly, the car was bought with 14K rebate. Chances of any rebate coming back in next 3 years is pretty much zero, so I would be an idiot to not buy the car, because I could easily sell it and make a nice coin. Unless the battery will degrade significantly, I think the value of my car will actually go up … sounds strange, and I would never say that about cars ever, but that’s what happens when all EV’s in my market get 14K more expensive, overnight …

Get Real

That Bolt lease referenced above is pretty crappy.

Clive

Every time I tried the lease a Chevy Bolt they tried to screw me.

Now Chevrolet is closing five plants.

Go figure.

Ron

I always laugh at the people who get all excited about the cost of Overage miles, quoted here as 15 to 35 cents per mile.
Looking at the LEAF: 2929 (initial payment)+ 36×249 (Monthly payment)/36000 miles = 33 cents/mile (not counting disposal fee).
Overage miles may be the cheapest miles of the lease.

Clive

So your adjusted payment was $330 a month.

Benjamin

I can tell you this much, leasing is crappy for the Jaguar I-Pace. Residual value after 3 years is set at 39% and money factor is 0.00352 (that’s like 8.5% per year!). WTF?

REXtoCheckMate

They don’t want to sell to accountants.
That’s a discrimination case.

Mark.ca

I will take the deal presented here! ….lol….16439 + tax, license and fees.
This is exactly what I’m talking about when i bash Nissan for their extremely bad leases.

Alan M

If you’re going to lease an electric car you have to know how to bargain and play one dealer against another. I got quotes from 10 dealers all over CA before I chose one. Also go to: http://ev-vin.blogspot.com/current-discounts-on-selected-evs.html
and leasehackr.com to see the best nationwide offers to know what price to ask for. I got a base 2018 Chevy Volt 3 year lease for effectively $95 a month ($205 per month minus $3500 CA EV credit and $500 utility credit) with no down payment and nothing extra for tax, registration, acquisition fee, etc. It is best to wait until spring or summer when inventory clearance time comes. You also should check each EV manufacturer’s website to see which ones are offering monthly sales incentives, conquest bonuses, loyalty bonuses etc. Dealers in major metro areas are more competitive because they get manufacturer bonuses for leasing a base number of EVs to help meet CARB requirements.

Re-Volted

I get that GM doesn’t want to heavily discount a Bolt they aren’t making $ on, but why is the lease so much worse than an I3 that sells for $10 more? (Ok tries to sell for)
Even my Volt lease was barely acceptable.