Pitfalls To Avoid When Financing Your Electric Car

electric car

Guest Contributor: Creditplus, An e-zoomed Partner


Electric cars are getting a lot of press at the moment, and for good reason. Manufactures from a range of countries are releasing electric vehicles, at increasingly affordable prices. Tesla’s Model 3 was the third most popular car in August this year – ahead of incumbent favorites such as the Mercedes A-Class and Ford Focus. The £36,500 starting price has put it on par with its ICE rivals, but with the performance and space-age tech to send its sales supersonic. 

Tesla Model 3
Tesla Model 3

So, if you’re looking to make the switch from a petrol or diesel-fuelled vehicle to a fully electric car, you’ll find there are many advantages, such as lower running and maintenance costs, and an entirely new driving experience, where instant acceleration is available in near silence. However, buyers are still concerned about this nascent segment and may have different questions to traditional car buying. Whether the electric car you’re looking at is new or used, these are the potential pitfalls to look out for. 

Buying a car with finance has quickly become the most popular method for getting behind the wheel, and products such as Hire Purchase (HP) and Personal Contract Purchase (PCP) account for over 90% of new car sales. Car leasing, too, has become an easier way to drive a newer car without the potential risks of resale. Leasing a car means you pay fixed monthly payments for a set period – usually 2 to 4 years – and hand the car back at the end without nothing owing (subject to mileage limits and fair wear and tear).

Those mileage limits – also applicable to PCP purchases – are worth checking and setting appropriately, based on your annual mileage. The monthly price you pay will increase if you increase the mileage limit and this is because the car will be worth less to the finance company if it has more miles after you’ve finished with it. In essence, it will depreciate faster if you drive it more.

Car leasing and PCP are products based on you paying for the depreciation of the car, plus interest. As electric cars are relatively new compared to petrol or diesel, there is less data for finance companies to use when predicting the guaranteed minimum future value (GMFV). In the very early days of EV’s, the cars depreciated far quicker than ICE, often being worth up to 20% less than the equivalent ICE. 

depreciation of electric cars

However, this has rapidly changed and EV’s today depreciate far slower than petrol or diesel alternatives. For instance, the average car – independent on fuel type – is worth 38% of its original value after 3 years, whereas the BMW i3 and Nissan LEAF is worth 63% and 59% respectively. 

No matter how you buy an electric car, depreciation is an important factor. It’s always advantageous for a car to not lose too much money whilst you’re driving it – but it’s an especially important factor when buying through PCP. 

At the end of a PCP contract, you have three options: return the car to the finance company and walk away, pay the balloon payment agreed at the beginning of the contract and keep the car, or use any positive equity you have in the vehicle to put towards your next car. If the car doesn’t depreciate by much over your term, then your monthly payments would have been low but the balloon payment applicable will be higher.

Lastly, when shopping around for a used electric car, it’s important to question the battery degradation of the model you’ve found. Battery degradation affects all electric cars, but some manufacturers have developed batteries which last longer than others. In real terms, a battery will leave the factory having 100% capacity – but over time the amount the battery can be charged will reduce, meaning that ‘full’ might only be 80% of what ‘full’ used to mean. This is true across all electronics – from your mobile phone, to laptop and wireless headphones. Certified dealerships will have the ability to test battery degradation in their used stock, so you’ll be sure that the battery has life left in it. However, there are extensive and comprehensive warranties in place to combat this, like Tesla’s Model 3 guarantee which will replace the battery if it falls below 70% capacity. This policy is unlikely to be used by the majority of drivers as research suggests Model S and Model X vehicles can reach 150,000 miles before facing a drop of 10% in battery capacity. 

Electric cars are undoubtedly here to stay, and will only become more popular, as range anxiety dwindles and an influx of used models make for an affordable choice for the vast majority of buyers – but by looking out for mileage limits, understanding depreciation and questioning battery degradation you can avoid some of the pitfalls that might make owning one of these vehicles anything but electric!


We at e-zoomed are more than happy to assist you with all your EV needs to include:

And more!  Do sign up to our e-newsletter to learn more about electric cars. Also follow us on Facebook, LinkedIn and Twitter. 



Author

Blake Hawksworth

Blake works alongside brands in the mobility, finance and technology sectors to deliver engaging content on behalf of Creditplus. Since 2004, Creditplus have strived to help find customers the right car for them and have pioneered the online car buying journey. Blake has a personal interest in the future of mobility, although a sailboat might be his preferred mode of transport.

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