Pitfalls To Avoid When Financing Your Electric Car

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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 favourites 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. 

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
Car Depreciation

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!

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For those of you seeking to buy and install EV home charging points, we offer a vast range of high quality and high performance electric car charging points at competitive prices. We also offer EV charging cables, EV leasing and green energy.


Ashvin Suri

Ashvin has been involved with the renewables, energy efficiency and infrastructure sectors since 2006. He is passionate about the transition to a low-carbon economy and electric transportation. Ashvin commenced his career in 1994, working with US investment banks in New York. Post his MBA from the London Business School (1996-1998), he continued to work in investment banking at Flemings (London) and JPMorgan (London). His roles included corporate finance advisory, M&A and capital raising. He has been involved across diverse industry sectors, to include engineering, aerospace, oil & gas, airports and automotive across Asia and Europe. In 2010, he co-founded a solar development platform, for large scale ground and roof solar projects to include the UK, Italy, Germany and France. He has also advised on various renewable energy (wind and solar) utility scale projects working with global institutional investors and independent power producers (IPP’s) in the renewable energy sector. He has also advised in key international markets like India, to include advising the TVS Group, a multi-billion dollar industrial and automotive group in India. Ashvin has also advised Indian Energy, an IPP backed by Guggenheim (a US$ 165 billion fund). He has also advised AMIH, a US$ 2 billion, Singapore based group. Ashvin has also worked in the real estate and infrastructure sector, to including working with the Matrix Group (a US$ 4 billion property group in the UK) to launch one of the first few institutional real estate funds for the Indian real estate market. The fund was successfully launched with significant institutional support from the UK/ European markets. He has also advised on water infrastructure, to include advising a Swedish clean technology company in the water sector. He is also a member of the Forbury Investment Network advisory committee. He has also been involved with a number of early stage ventures.

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