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The financial burden of vehicle ownership, from the initial purchase to filling up at the gas station, hit record highs for drivers in the last year. While gas prices have crept down — a gallon averaged $3.38 on Feb. 24, according to AAA — financing a vehicle is getting pricier as interest rates go up. Drivers pay an average of $700 a month for new vehicle financing and $525 for used in 2022’s third quarter, according to Experian.
With steep costs to fill up and finance, plus the ever-present worries over climate issues, many drivers are itching for another solution. You might be asking, “Should I buy an electric car?” And you wouldn’t be alone. Electric vehicle (EV) sales have jumped in the past few years, and TransUnion predicts that the EV market share will reach 40 percent by 2031. But the expensive upfront cost of an electric vehicle might not be right for every driver.
Should I buy an electric car?
The choice to buy electric should be approached with the same care as determining the make and model of your next car. For some, the convenience of never gassing up paired with minimal maintenance makes the high price tag worthwhile.
“From a strictly consumer experience perspective, buying an electric car will be very positive,” says Brian Moody, executive editor at Autotrader. “In addition, the driving experience of electric cars is very rewarding. Acceleration is more brisk and electric cars have cool features like the ability to heat up or cool down your car’s interior before you hit the road.”
And, if not a full EV, a hybrid or plug-in model can be more fuel-efficient than traditional gas models while being kinder on your wallet than an EV. As Moody explains, these tend to carry a lower price tag and “function as an electric car on a day-to-day basis, consuming gas only for long trips.” This makes them an option for drivers interested in driving electric but not ready to commit fully.
The electric car industry has seen great innovation over the past two years and will continue to expand. While upfront costs have historically been high, they’re descending as more options become available and legacy brands dive into the electric car market.
The U.S. auto market is shifting toward electric
Record-high gas prices may have helped to propel EV sales. EVs made up 5.7 percent of new vehicle registrations in Q2 2022, according to Experian. That may not seem big, but it’s a notable increase from the 1.5 percent share that EVs represented in Q2 2018. This growing interest in electric vehicles has led to advancements in available financing, including green auto loans and tax credits.
This expanded market is one of the primary reasons to consider buying an EV. While Tesla currently dominates the market, TransUnion predicts the luxury brand will fall below 20 percent of the market share by 2025 due to the number of new and more mainstream makes entering the space.
Moody shares a similar perspective when it comes to vehicle availability. “It used to be true that there were only a handful of very small or very expensive electric cars. While EVs are more expensive as a whole, some individual models are more reasonably priced. For example, the Kia EV6 and Chevrolet Bolt.”
The Nissan Leaf is another cost-effective EV option.
EV drivers share almost identical credit profiles to those driving luxury
Satyan Merchant, senior vice president and automotive business leader at TransUnion, has seen increasing popularity in EV financing and a subsequent impact on the overall auto finance industry. TransUnion’s 2022 study reported that out of the 33 million consumers between 2019 to 2021 who originated new EV and traditional vehicle loans, most EV borrowers shared almost identical high-credit profiles to those driving luxury vehicles.
Those driving mainstream EVs held an average credit score of 775, falling into the prime category. They also had an average APR of 2.8 percent. This is lower than the average APR of 4.9 percent for all new cars for borrowers in the prime category. The competitive average APR of EVs isn’t just due to the high credit profiles of these drivers. Buyers are generally also making large down payments.
The study also found that drivers were more likely to begin their car buying process online. In fact, more than one-third conducted online research on vehicle makes and models.
Merchant explains, “Our research clearly shows that electric vehicle buyers have excellent credit risk profiles, but this group also has varying preferences, including a larger appetite in shopping around for vehicle financing by digital means.”
This larger appetite will likely be reflected in new options for EV financing combined with an expansion of available vehicles expected over the next few years.
Options for eco-friendly financing are expanding
This growing market for electric vehicles has also led to advancements in financing. While it is true that drivers can utilize direct or indirect lending for their electric vehicles, EV-specific lenders are gaining popularity and provide drivers with a tailored experience through green auto loans.
Alex Liegl, CEO of Tenet, comments on the company’s work in EV financing and its goal to make climate investment an easy decision. The Tenet approach “gives customers the freedom to manage upfront investment costs and save down-payment cash to use for other expenses,” Liegl says.
Along with this, there is a deferment option that shifts a quarter of the purchase price to one final payment at the end of the financing term. This allows for lower monthly payments and a streamlined financing experience — but a large amount may be due at the end.
The goal, Liegl says, is to “help customers fully electrify their lives by making sustainable home upgrades more affordable, including the installation of solar panels, battery backup, smart appliances, EV charging and more.”
Other companies, like EV Life, serve as a marketplace for loan prequalification directly connected with EV incentives and green loans available in your state. According to its website, drivers can save up to $200 per month on their monthly EV loan payments.
Can EVs carry a lower lifetime cost?
So, is an electric car worth it? The good feelings that come with operating a vehicle that is better for the environment isn’t the only reason people are turning to EVs. There’s also the potential to save money. While it is true that gas isn’t the only cost accrued when driving, in some cases driving electric can be cheaper overall.
In a 2020 survey, drivers of electric vehicles saved an average of 50 percent on maintenance and repairs over the lifetime of ownership, according to Consumer Reports. This is due primarily to the differences in general upkeep that come with EVs. These vehicles do not require oil changes and use a simpler powertrain. Those driving battery-electric vehicles and plug-in hybrid vehicles spent only 3 cents per mile over the lifetime of the vehicle, compared to 6 cents per mile for traditional vehicles.
But driving electric isn’t completely rosy. CNET, a Red Ventures company, reported on a 2021 study by We Predict that found less favorable data about repair costs. While it is true that drivers can avoid the additional cost associated with some maintenance, like oil changes and basic inspections, EV parts are much more expensive when it comes time for repairs.
This means that longer maintenance hours logged combined with more expensive replacement parts can make driving electric just as, or pricier, than driving gas-powered vehicles. Moreover, electric cars can depreciate at a faster rate than the traditional gas-powered option because of the speed of tech advancements, although the current demand for EVs is helping to stabilize prices at the moment.
How to finance an electric vehicle
The process of financing an electric vehicle is fairly similar to that of a traditional gas-powered car. It is important to follow the same steps you typically would, comparing rates and available terms and understanding the weight that your credit score and history carry.
As mentioned, driving electric also carries federal and potential state benefits that you would not traditionally have access to. One of these is the federal EV tax credit, an incentive worth $7,500 that applies to new, qualified plug-in and fuel-cell electric vehicles.
New in 2023, you might also be able to get a federal tax credit for used EVs. The vehicle cannot be purchased for more than $25,000. If it qualifies, you can claim a credit for up to 30 percent of the sale price, capped at $4,000.
Both federal tax credits come with income limits and vehicle requirements, so make sure you and your potential future EV qualify before diving in.
Beyond that, you might be able to claim a state tax credit depending on where you live.
Questions to ask yourself before buying an electric vehicle
Owning and operating an electric car comes with an additional set of needs that you may not have dealt with in the past. Consider these questions.
1. What is the vehicle range?
It is important to check the distance your vehicle can get you — for both your typical commute and your travel habits. Energy.gov reports the average range for 2021 model year vehicles exceeded 230 miles, with a potential range of up to 405 miles. Fortunately, drivers will likely deal with less “range anxiety” as vehicles catch up with available technology. But it is wise to check your needs by factoring in your typical commute and expected leisure activities.
2. Should I lease before I buy an electric car?
“Leasing an electric car can be a good way to test the waters of EV ownership,” Moody says. Leasing is typically less expensive on a month-to-month basis and usually includes a warranty. If you are on the fence about driving electric, consider leasing one to see if you like the feel and experience.
3. Do I have access to vehicle chargers in my area?
Although the Electric Vehicle Council found that about 80 percent of EV drivers charge up at home, many drivers do not have the luxury of installing a Level 2 charger. That’s okay. Many EVs now have the option to charge from any electrical outlet, although it may take all night or longer to get a full charge.
That said, you might need a speedier charge at times. Many EVs take about 45 minutes to get to 80 percent battery capacity at a fast-charging station. To find out where you might be able to get a faster charge, check out PlugShare, which maps out charging stations nearby. Double-check that any charging stations you plan to frequent are compatible with the car you’re considering.
Consider an EV when shopping for your next vehicle
So, is an electric car worth it? Like any other luxury vehicle, EVs can carry higher upfront costs, and drivers need a strong credit profile to benefit from low interest rates. But as the industry grows and more mid-tier options pop up, more drivers can reasonably consider an electric option.
Are you one of the 36 percent of Americans considering electric? Moody recommends aiming for the sweet spot by buying lightly used — something in the three- to five-year range — to benefit from a lower price and a good amount of warranty coverage.