December 8, 2023

Car Auto Finance

Car Auto Finance FOR Everyone

Is Now A Good Time To Buy An Electric Vehicle?

The financial burden of vehicle ownership, from the initial purchase to filling up at the gas station, hit record highs for drivers this summer. Gas is on average $4.44 a gallon as of July 21, according to AAA. On top of high gas prices, drivers in June of 2022 were paying an average of nearly $700 a month for new vehicle financing, according to J.D. Power.

With steep costs to fill up and finance, plus the ever-present worries over climate issues, many drivers are itching for another solution. But are electric vehicles (EVs) the answer that drivers are looking for? EV sales have jumped in the past few years, and TransUnion predicts that EV market share will reach 40 percent by 2031 — a 35 percent jump from the end of 2021. But the expensive upfront cost of an electric vehicle might not be right for every driver.

The choice to buy electric is deeply personal and should be approached with the same care as determining the make and model of your next car. For some, the convenience of never having to go to a gas station makes the high price tag worthwhile.

Electric cars have advanced in a way that now places them on the podium next to high-end options. “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 can be more fuel-efficient than traditional gas models while also being kinder on your wallet than EV. These tend to carry a lower price tag and, as Moody explains, “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 who are not ready to fully commit.

The electric car industry has seen great innovation over the past two years and will continue to expand. This means that while upfront costs can tend to be higher, more options will become available as legacy brands dive into the electric car market.

The U.S. auto market is shifting toward electric

Record-high vehicle and gas prices have left EV sales to make up for the loss of inventory available in the traditional market. EVs and hybrids made up 4.64 percent and 7.18 percent of new vehicle registrations, respectively, according to a 2022 Q1 report by Experian. 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 now consider purchasing an EV just as you would with a traditional car. While brands like Tesla used to dominate the market, TransUnion predicts the high-tech 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, there are individual models that are more reasonably priced. For example, the Kia EV6 and Chevrolet Bolt.”

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 internal combustion engine (ICE) vehicles, 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, according to Experian. They also had an average APR of 2.8 percent. This is lower than the average APR of 3.56 percent for all new cars for borrowers in the prime category. The competitive average APR of EVs is due primarily to the high credit profiles of these drivers and the addition of 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.

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 an average of $180 per month on their monthly EV loan payments.

Can EVs carry a lower lifetime cost?

The good feelings that come with operating a vehicle that is better for the environment isn’t the only reason people are turning to EV; 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 carry a simpler powertrain. Those driving BEV (battery-electric vehicles) and PHEV (plug-in hybrid vehicles) spent only 3 cents per mile over the lifetime of the vehicle, compared to 6 cents per mile for ICE 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. Moreover, electric cars depreciate at a faster rate than the traditional gas-powered option because of the speed of tech advancements.

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 benefits that you would not traditionally have access to. One of these is EV tax credits, an incentive worth $7,500 that applies to electric and plug-in vehicles. Not every state offers this credit, so it is important to check your qualifications prior to submitting your necessary paperwork.

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. reports the average range for 2020 model year vehicles exceeded 250 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 between 70 and 80 percent of EV drivers charge up at home, many drivers do not have the luxury of installing a charger at home. In the long term, charging up at home could be pricier than just heading to the gas station. So, for many, for it to be a successful and cost-effective purchase, you need access to chargers — at home or in your area.

According to Moody, “if you can’t charge at home, the experience isn’t as great.” But if you are okay with trips to nearby charging stations just as you would fill up at the gas station, check out PlugShare, which maps out charging stations nearby.

Consider an EV when shopping for your next vehicle

Like any other luxury vehicle, EVs can carry higher upfront costs, and drivers with strong credit profiles will likely only benefit from lower interest rates. But as the industry grows and more mid-tier options pop up, more drivers can reasonably consider an electric option.

If you are one of the 36 percent of Americans who are considering electric, Moody recommends aiming for the sweet spot by buying lightly used — something in the three-to-five-year range — to get the benefit of both a lower price and a good amount of warranty coverage.