How can people afford an electric car?

Do you dream of cruising the motorways with a sleek, new electric car? But, the expense of such four-wheeled luxury may feel as daunting as navigating Piccadilly Circus at rush hour.

Fear not, for we reveal how you can embrace the electric car revolution without breaking the bank! 

We review the different car finance options and cover the flexible alternative - a monthly EV subscription.

The cost of an EV

The cost of electric cars obviously varies wildly, depending on the make, model, and features you're after.

The average cost to buy an electric car in the UK is around £50,000 (based on the top 15 best-selling EV models), with new electric car prices ranging from £22,000 up to over £156,000 even more. 

However, some cheaper options are available, such as the Fiat 500 Electric, which starts from around £28,000 (new), or about £17,000 when buying used. The Renault Zoe is also a popular model, which starts from £29,000 (new) or about £12,000 for a 2-3-year-old model.

Higher-end electric cars, such as the Tesla Model 3 and Polestar 2, can start at around £40,000, with more luxurious models like the Tesla Model S and Model X exceeding £80,000.

Electric cars may have higher upfront costs than petrol or diesel cars but have lower running costs and environmental benefits.

If you value flexibility, some of the cheapest EVs on subscription start from £400 per month. The selection of subscription cars for roughly that budget is actually quite rich - you can get your hands on an MG5, Fiat 500 Electric, Renault Zoe and even a Vauxhall Corsa-e.

Current government grants and incentives

Although many grants have now been stopped, there are still a few you can potentially take advantage of. 

Some of the current government grants and incentives for electric cars in the UK are:

• The Electric Vehicle Homecharge Scheme (EVHS) offers up to 75% – up to a maximum of £350 – towards installing a smart charge point at your home. This is only available for homeowners living in flats, renters, and those who bought EVs after 1 April 2015.
• The Workplace Charging Scheme (WCS) offers up to 75% – up to a maximum of £350 per socket – towards installing up to 40 charge points at workplaces for employees and fleet vehicles.
• The Plug-in Car Grant (PICG) was a grant of up to £1,500 for electric cars priced under £32,000. This grant was axed in June 2022 for most private cars, but it is still available for wheelchair-accessible vehicles with a higher price cap of £35,000.
• The Low Carbon Transport Loan in Scotland offers interest-free loans of up to £35,000 to buy a new or used electric car or van. The loan is repayable over six years and is subject to availability and eligibility.

Electric cars also benefit from vehicle Excise Duty discounts or exemptions. You could also get a discount or possibly drive in the Congestion Charge zones for free. 

Electric car financing options

Various financing options are available for electric vehicles, making it easier to afford.

Personal Loan

You can take out a personal loan from a bank or other financial institution to purchase an electric vehicle. You’ll own the car outright, spreading the cost of the vehicle over a fixed term, usually with a fixed interest rate.

The interest rate and repayment term will depend on your credit score, income and the amount you borrow. Ensure you have a good credit score and compare various loan offers to secure the best deal.

Hire Purchase (HP)

With a hire purchase agreement, you pay a deposit upfront (usually around 10% of the car's price) and then make monthly payments over a set period. At the end of the term, you own the vehicle outright once all payments have been made.

This option offers fixed interest rates and the ability to spread the cost over an extended period.

The Polestar website has a handy calculator that lets you see how these factors affect your monthly payments. For example, if you choose a standard Polestar 2  (£44,950) with no options, a deposit of £4,000 and a repayment term of 48 months, your monthly payment would be £1,012. At the end of the contract, you’ll own the car outright.

Personal Contract Purchase (PCP)

PCP is similar to HP but offers lower monthly payments. At the end of the contract term, you can return the vehicle, buy it outright by paying a 'balloon payment,' or use the equity as a deposit for a new vehicle.

This option offers flexibility but can be more expensive in the long run if you decide to buy the vehicle.

For example, if you choose a standard Polestar 2 with no options (£44,950), a deposit of £4,000, a term of 48 months and an annual mileage of 10,000 miles, your monthly payment would be £599. At the end of the contract, you can pay a final balloon payment of £20,250 to keep the car, return it or trade it in for a new one.

Leasing

Leasing an electric vehicle means you never own the car; instead, you pay a fixed monthly fee to use it for an agreed-upon period. You return the car to the leasing company or dealer at the end of the lease term.

Leasing allows you to drive a new EV without the commitment of ownership. Still, you'll need to consider any mileage restrictions and potential charges for excess mileage or damage to the car.

For example, if you choose to lease a standard Polestar 2 (£44,950) with no options for £509 per month with a deposit of £3,054 and an annual mileage of 10,000 miles. The contract length is 48 months. This includes service and maintenance but not insurance or vehicle tax.

Manufacturer incentives

Many automakers offer special deals or incentives to encourage electric vehicle sales, such as low-interest financing, cashback offers, or other discounts.

Watch for these offers and be prepared to negotiate with dealers to get the best possible deal.

EV salary sacrifice schemes

Let's talk about a little-known gem of the EV world: the salary sacrifice schemes! This type of employee benefit lets you exchange part of your gross salary for a brand-new electric car.

By sacrificing part of your salary before tax and National Insurance deductions, you can lower your taxable income and pay less tax and NI overall. 

For example, earning £30,000 a year and choosing an electric car worth £25,000 on a three-year lease could save around £3,600 in tax and NI over the contract period. That’s a lot of money in your pocket!

Of course, not all employers offer EV salary sacrifice schemes, so you’ll need to check with your HR department if they do. 

You’ll also need to make sure you can afford the monthly payments and that you’re happy with the terms and conditions of the lease. But if you’re keen to switch to an electric car and save some cash, such EV schemes could be an excellent option for you. 

We have a detailed review of the current EV salary sacrifice schemes, so be sure to check it out! 

Buying a second-hand EV

Buying a second-hand EV can be a fantastic way to save money when switching to an electric car. Just like with traditional petrol or diesel cars, the value of electric vehicles depreciates over time. This means you can often find a pre-loved EV at a significantly lower price than a brand-new model, making it a more affordable option.

You can find EV models for as little as £4,000 (a 10-year-old Nissan Leaf), which is much cheaper than buying new.

Buying used electric cars comes with one potential drawback - its battery!

The battery of an EV degrades over time and loses some of its capacity to charge and hold power. This means the range of the car will also decrease over time. Most EVs have an eight-year battery warranty from the manufacturer, which usually guarantees 70% of its capacity. For example, Tesla’s warranty lasts for eight years or 150,000 miles. 

So if you buy a used EV older than eight years old, you might have to replace the battery soon, which can be very expensive (upwards of £10,000!).

But the battery capacity and condition depend on a lot of things, so if it’s been looked after, you stumbled on a good one!

So before buying a used EV, you should research and check the car thoroughly. Look at the battery health, the service history, the mileage and the condition of the car. 

Electric car subscription services: A good alternative?

Another electrifying alternative to consider when embracing the world of electric vehicles is electric car subscriptions!

If you're someone who isn't keen on committing to a full-on purchase or even a traditional lease, this is the ticket for you. 

Subscription services, much like Netflix, provide you access to an electric vehicle for a fixed monthly fee. And the best part? Most subscription services include insurance, maintenance, roadside assistance, and sometimes even charging costs (check out Onto) within the package! 

This means you can enjoy the benefits of driving an EV without worrying about unexpected expenses or the hassle of long-term commitments.

We specialise in car subscriptions, so here are some helpful links:

• 5 good reasons to get an electric car on a subscription
• Car subscription vs buying a car
• Best 5 electric cars on subscription

The most affordable subscription EVs

Here are some good affordable electric car models on a monthly subscription you may want to consider:

Cheapest EVs with a great range: Renault Zoe

The Renault Zoe is a popular and practical electric hatchback that offers a range of up to 200 miles on a single charge. You can subscribe to a Renault Zoe from Onto, which offers an all-inclusive service for £499 per month with no deposit and 750 miles per month.

You can also subscribe to a Renault Zoe from elmo, which offers a flexible service £449 per month (when committing to 12 months) with no deposit and 800 miles per month.

Cheapest EVs for families: Hyundai Ioniq

The Hyundai Ioniq is a spacious and efficient electric car that offers a range of up to 160 miles on a single charge. You can subscribe to a Hyundai Ioniq from Onto, which offers an all-inclusive service for £549 per month with no deposit and 750 miles per month. 

Cheapest EVs for city driving: Fiat 500e

The Fiat 500 Electric is a stylish and fun electric city car that offers a range of up to 150 miles on a single charge. You can subscribe to a Fiat 500 Electric from Onto, which offers an all-inclusive service for £529 per month with no deposit and 750 miles per month.

You can also subscribe to a Fiat 500 Electric from elmo, which offers a flexible service for £477 (or 429 when committing to 12 months) per month with no deposit and 800 miles per month.