Want a New Electric Vehicle? Here's a Good Reason to Lease Instead of Buy

If you're thinking about buying an electric vehicle in 2024, you might be wondering how much EV you can really afford. There are EV tax credits of up to $7,500 for buying a new EV, and up to $4,000 for buying a used EV, but not every new EV qualifies for that full amount of tax credits.

And if you buy a used EV, you might have concerns about the quality of a used EV battery that already has thousands of miles on it. What if there was another way to get behind the wheel of an electric vehicle, without the long-term commitment of buying an EV? Well, there is: it's called leasing.

Leasing a vehicle is nothing new in the auto industry; for many years, car shoppers have had the option to lease instead of buy. But some electric vehicle leases might be better than buying, depending on your car shopping needs.

Let's look at the biggest reason to lease an EV instead of buying one.

The top reason to lease an EV: Try before you buy

Leasing an EV lets you try a new electric vehicle without a long-term commitment. Many people are curious about EVs, but have concerns like range anxiety, lack of public charging stations, and whether EVs hold their value as well as gas-powered cars. Buying an EV with so many unknowns could feel too risky.

When you lease an EV, you can get a shorter-term commitment. Some typical auto leases run from 18-36 months. Here are a few car companies that offer EV leases:

• Hyundai: Lease a 2024 IONIQ 5 SE Standard Range starting at $343 per month for 36 months with $5,008 due at signing.
• Polestar: Lease a 2024 Polestar 2 Long Range Single Motor starting at $349 per month for 27 months with $5,349 due at signing.
• Volvo: Lease a 2024 Volvo C40 Recharge starting at $483 per month.

These lease offers were valid as of Jan. 15, 2024 but may expire, and might not be available in all states. Exact terms of an auto lease will depend on the dealership and your car's MSRP (manufacturer's suggested retail price). But leasing an EV might give you a lower monthly payment than you could get from buying a new EV and getting an auto loan.

Do EV leases get the full EV tax credit?

Another fun fact about leasing an EV is that leased electric vehicles qualify for the full $7,500 of the new EV tax credits. If you buy a new EV, you might only get $3,750 of that EV tax credit (or less) because of federal rules about where the EV was built and where its battery materials came from.

When you lease an EV, you (as the customer) do not get the $7,500 tax credit directly. Instead, the car dealer gets the $7,500 credit and (ideally) passes on the savings to you, in the form of a discount on the price of your leased vehicle. For example, Hyundai and Polestar both advertise their lease prices as including a $7,500 discount from the EV tax credit.

But just like the price of a lease, whether or not you get a discount for the leased vehicle's EV tax credit is ultimately up to the dealership. Some dealerships might even mark up the price of the leased vehicle before they discount it, which means you don't really get that full EV tax credit.

Leasing an EV: Pros and cons

Leasing an EV has potential advantages and drawbacks.

Leasing an EV: Pros

• Your monthly payment on a lease might be lower than buying a new EV: For example, if you bought a new Volvo C40 Recharge (MSRP $53,600) with a $12,000 down payment and an auto loan of 48 months at 7% APR, you'd have a monthly payment of $996. The lease price starts at $483 per month.
• You don't have to worry about used EV depreciation: By leasing a new EV, you get the newest EV technology, the newest EV batteries, and you're not on the hook for maintenance, repairs, or depreciation if the EV loses a lot of value while it goes from "new" to "used."
• No repair costs: With a lease, your repair and maintenance costs are typically covered by the dealership. But you still have to buy auto insurance.

Leasing an EV: Cons

• You don't own anything after the lease is up: With a lease, you make a trade-off -- you get a (ideally) lower monthly payment and lower costs of ownership, but you don't actually own the car in the end. When you buy a car, you can pay off the auto loan and own the car, with zero monthly payments. Leasing a vehicle is like renting an apartment, instead of building equity in a home of your own.
• You might owe extra money: Lease terms typically require you to drive the car only for a certain number of miles, like 10,000 or 12,000 miles per year. For every mile you drive over that limit, you'll have to pay a fee -- such as $0.25 per mile. You can also be charged a fee for extra wear and tear on the vehicle. Also, insurance for leased vehicles can sometimes be more expensive than purchased vehicles.

Bottom line: If you're curious about EVs, and you don't mind the complexities and possible downsides, leasing an EV could fit your budget and avoid the risks and commitments of buying an electric vehicle. Be sure to get quotes from car insurance companies before you lease an EV.