The Struggles of Financing an EV and How to Overcome Them

Electric vehicles are much friendlier for the environment than gas-powered vehicles, but unfortunately, they're a lot harder on your wallet. The average cost of an EV in July 2023 was $53,469, according to Kelley Blue Book, while the average gas-powered vehicle only cost about $48,334. That's a difference of over $5,000. 

That actually represents an improvement over years past, but it's still a stretch for many drivers. Fortunately, some smart strategies could help you squeeze an EV into your budget. 

Buy used

There aren't as many used EVs available as used gas-powered vehicles, but more are starting to crop up as EVs become more popular. You may be able to find some by visiting your local used car dealerships. You can also check online sites like Carvana to see what their inventories look like.

You'll probably still pay more than you would if you were buying a used gas-powered vehicle, but you'll save a lot compared to buying a new EV. Be sure to give the car a thorough inspection and test drive before you agree to buy it, so you know what you're signing up for.

Take advantage of tax credits

The federal government offers tax credits of up to $7,500 for buyers of select new EV models and up to $4,000 for buyers of select used EVs. But in order to qualify for the credit, cars need to meet certain criteria, including final assembly in the U.S. and a certain percentage of critical minerals and battery components extracted or processed in the U.S. or a U.S. free-trade agreement partner. You can check out FuelEconomy.gov to see which models qualify for tax credits.

Prior to 2024, drivers who claimed EV tax credits had to wait until they filed their tax returns for the year to claim this credit. But starting now, drivers can apply that credit to the point of sale, effectively reducing their purchase price. The dealer will help you take care of this when you finalize your offer.

Consider a green auto loan

Some banks and credit unions offer green auto loans targeted at EV purchasers. These are similar to traditional auto loans in that they use the vehicle for collateral. But they typically offer lower interest rates. This could make your monthly payments a little more affordable than with a traditional loan.

Check with local financial institutions to see if any offer green auto loans. Compare some online providers as well. It doesn't hurt to get estimates from a few of them to get a sense of what you'll pay. Don't just look at monthly payments. Think about closing costs and how much you'll pay in interest over the life of the loan, as well.

Shop around for auto insurance

Auto insurance is typically higher for EVs because they're more expensive cars. Shopping around is critical for drivers looking to keep their insurance premiums down.

It's best to compare quotes from a handful of top insurance companies before purchasing a policy. Some insurers even offer discounts for EV and hybrid vehicles, so these are worth checking out.

Wait it out

If EV ownership still isn't feasible for you even after considering the above steps, you may have to wait to purchase one. But that's not necessarily a bad thing. Technology tends to become more affordable over time, and we've already seen this start to happen with EVs. Waiting even a year or two will likely open the door to more affordable options. Plus, auto loan rates may come down, which could make financing an EV even cheaper.