Leasing An EV: What To Know Before You Sign

Driving an electric vehicle has many benefits, including a smaller environmental impact than gas-powered options, less maintenance and rapidly developing technology. However, if you aren’t quite ready to dive in with financing an EV purchase, leasing is a great option.

With a lease, you can enjoy the money-saving benefits without being tied to one car for too long.

The EV leasing tax loophole is the best reason to lease

The average cost of a new EV in September was $50,683, according to Kelley Blue Book. This price is down more than 22 percent compared to last year, driven primarily by Tesla price reductions.

But even with the price decline, EVs are more expensive than gas-powered vehicles. EV tax credits help offset that cost and can make leasing an EV extra affordable. Combine increased dealer incentives with the wins from updated tax credit rules from the Inflation Reduction Act, and leasing an EV can save you quite a bit of money.

The Inflation Reduction Act holds strict rules regarding the vehicle’s origin and its accompanying parts to benefit from the credit. This rule made it challenging for some drivers to get the $7,5000 tax credit. But this is not the case for leasing. Under the rules outlined in the Act, the dealer can apply the credit to any leased EV vehicle that meets pricing requirements — no matter where it’s made. This credit can dramatically cut the monthly cost to lease.

How dramatically? An April J.D. Power study found that since December, the average monthly ownership cost on a three-year lease has dropped by $403, driven primarily by tax credits.

This loophole has influenced many more drivers to lease instead of buying. In April, J.D. Power reported that leases made up for 41 percent of EV deliveries, four times the percentage in December — before the rule went into effect.

But to qualify for the credit, a car must be priced no higher than $55,000, or $80,000 for SUVs, pickups and vans. The buyer or lessee must also have an income no greater than $150,000 if single, $300,000 if filing jointly and $225,000 if head of a household.

Other reasons to lease an EV

From carmaker incentives to access to the latest technology, there are several reasons you might want to lease an EV.

• You can get tech upgrades faster. With how fast EV technology is improving, it may be worth planning on trading up for a better model in a few years.
• You don’t have to worry about certain maintenance issues. Range loss and premature death of the battery can be costly, but it’s less of a worry if you won’t have the vehicle for more than two to four years.
• Incentives from carmakers. Carmakers offer lease specials that can offset the cost of monthly payments. These often go to customers with good to excellent credit, so be sure you qualify.
• You likely won’t have to pay upfront. Leased vehicles rarely require a large down payment — if any. This means you won’t need to worry about saving 10 or 20 percent of the car’s value like you might when purchasing.

How to lease an electric vehicle

1. Know your range

An electric car’s range is an essential consideration. Understanding your driving habits can reduce range anxiety and ensure you get a vehicle equipped for your needs. Look at your typical commute, including common errands, and map out nearby charging stations.

If you commute to work or around town daily, you’ll want to make sure you can make the whole trip on a single charge. Since driving range can vary based on speed, weather and charge capacity, it’s best to err on the side of caution.

2. Consider the car size

The next step is determining the size of car you need. Car manufacturers offer electric cars in sizes from sedan to SUV, so you should be able to find something that fits your lifestyle and budget.

A subcompact may serve you if you’re mostly commuting to and from work. But for those with a family to haul, you may want to look into the top electric minivans.

3. Test out the EV

Once you’ve found the right electric vehicle, it’s time to test drive the car to ensure it’s a good fit. Pay close attention to how it handles and how the electronics work. Ask yourself if you’re comfortable in the driver’s seat and if you have clear lines of sight to all mirrors.

4. Negotiate and take out the lease

Be prepared to negotiate before signing the lease. Bargaining may help you up your annual mileage limit or decrease the monthly cost.

Once you’ve signed the lease, you’re locked into the term and can’t back out without paying a penalty. Once the lease ends, check the car for any damage beyond wear and tear. At this point, you can buy it, turn it in or even trade up to a newer EV.

Should I lease or buy an EV?

When deciding whether to lease or buy an electric vehicle, ask yourself the same questions you would with any vehicle. Do you want to sign off on a long-term commitment or just drive a vehicle for a short period of time?

The downsides to leasing a vehicle, EV or otherwise, are the inability to build equity in the vehicle and mileage restrictions. But leasing could be the right move if the lower monthly payment outweighs these cons.

Additionally, electric vehicles’ range and charging infrastructure are constantly improving. Leasing lets you swap vehicles every few years, giving you access to new tech.

However, buying an EV puts you in complete control of the vehicle. You don’t have to worry about fees for going over allotted miles or wear-and-tear costs that come with leasing. Instead, you’ll know the total cost of the car and your financing from the get-go. And while the Inflation Reduction Act’s expansion means those leasing can benefit from incentives, owners can secure state-by-state rebates as well.

Ultimately, the best time to buy an electric vehicle is when it fits your budget and meets your needs.

The bottom line

The scope of available electric vehicles on the market is growing dramatically. As more options enter the market and availability for charging expands, leasing an EV can be a great way to dip your toe in without having to dive in headfirst, especially as the Inflation Reduction Act can sweeten the deal even for those leasing.