How does leasing an electric car work?

With more personal leasing customers turning towards electric cars (Yes - EVs are not limited to company cars!) the e-car lease team are experiencing more queries pertaining to the best financial product for procuring a new EV.

Should I buy or lease my new EV

Quite commonly the key question is - “should I buy or lease my new EV” - but this question does not wholly define exactly what needs to be discussed. In particular, there are a number of finance products which you can utilise personally, each with its corresponding advantages and disadvantages. For example, when looking at a new electric car you will probably consider:

Cash Purchase;
Hire Purchase;
Personal Contract Purchase; or
Personal Contract Hire.

In relation to the latter, Personal Contract Hire (PCH), this is fundamentally what the e-car lease team offer. While also referred to as “leasing”, PCH is a common method of finance used to procure new vehicles. As the official name would suggest, this is a hire based (non-ownership) route of using a vehicle for a fixed period of time.

Quite commonly a website will show a 2, 3 or 4 year term (although 18 month and 60 month contracts are sometimes available) based on a configurable annual mileage of between 5,000 - 30,000 miles per annum (subject to the EV’s range) and with an initial rental (deposit) which can be adjusted in-keeping with the customer’s needs and requirements. With contract hire you also have the ability to include a funder-maintained package which essentially includes the cost of all servicing, maintenance, tyres and breakdown recovery for the duration of the contract.

In instances where the manufacturer’s warranty ceases, the maintenance package will replace this. With leasing, the price you pay per month is very much based on the contract profile you utilise. For example, the lower the mileage and the higher the initial rental, the cheaper the monthly price will be.

But, what you shouldn’t do is to select a contract which is not appropriate. For example, if you are covering 8,000 miles per annum then you should not be looking into a low mileage contract of 5,000 per annum just because it provides an affordable monthly price. With contract hire, there will be an excess mileage fee in place which means that for any miles you cover over and above the agreed contract maximum you will be charged.

This is generally shown as pence per mile on the order forms and contracts your finance company or leasing broker presents to you. Conversely, don’t select a contract mileage which is too high either, as there is no rebate to you at the contract end if you return the vehicle under-mileage. To assist customers, our team will send a yearly reminder to ensure that the mileage is tracking correctly and to avoid any unnecessary bills or disappointment at contract cessation.

Choosing a term is also something which you need to consider. Generally, the longer the term the cheaper the monthly rental will be. However, leasing is a fixed term contract by which we mean that you cannot simply return the vehicle or swap the vehicle without a cost consequence.

If you take a 4 year contract and you wish to return it at after 2 years, then you would normally be asked to pay an early

termination fee equivalent to half of the remaining term. In this example, if you have 2 years remaining, you would need to pay 1 years’ worth of rentals in order to return the EV to the finance company. Unlike a Personal Contract Purchase (PCP), you cannot ask for a settlement in order to buy or sell the vehicle. In this way, contract hire can be seen as more inflexible compared to a purchase style product like PCP or a Hire Purchase (HP).

With leasing you also need to be aware of your personal credit. Everything that e-car lease offer will be a price we have synthesised from the select finance companies that we work alongside. Each finance company will ask for you to provide an application for credit which is done by you sending to our team a completed form setting out your:

Full name;
Date of birth;
Email address
Telephone Numbers;
Marital Status;
Home address (5-year address history);
Bank Details;
Employment history (3-year address history); and
Income and Expenditure.

The finance company will make a decision based on your two main criteria - 1) Your ability to pay; and 2) Your willingness to pay. With regards to the first element, you need to demonstrate that your income and expenditure is sufficient for absorbing the cost of the new car. To help our customers complete this correctly, we have produced an informative guide as to what details are required.

This is a key part of Treating Customers Fairly. The second element is to understand your propensity for payment i.e. your credit history. Using credit reference agencies like Experian, the finance company will review your credit history. To be clear, to lease an electric car you MUST have a good credit history. This is not suitable for adverse or poor credit situations.

With contract hire, the main advantages are that you never have a deprecation risk, as the electric car is always registered in the name of the finance company. If the market value of your vehicle is impacted negatively, this is not a risk you need to be concerned about unlike purchase products.

Leasing is also cost certain, in that if you build an accurate contract then this should be reflective of exactly what the vehicle will cost you except for insurance and fuel (if you take a funder-maintained agreement). However, at e-car lease we do help our personal leasing customers even further by setting out the cost of fuelling their new car so that you can not only work out, and compare, your energy bills against petrol/diesel but this also shows you an estimated cost for each mile you travel.

Using this correctly, with the exception of your motor insurance, you should be able to understand the true cost of zero-emission options.

When answering the leasing v buying conundrum with electric vehicles, what we stress to the customer is that they take time to understand the key facets of each product or approach. There is often no one “best solution”. It is more about what meets your needs and requirements taking into account appetite to risk, vehicle usage and your budget.

One of our existing personal lease customers kindly sent the e-car lease team some amazing photos of their new 100% electric Mini. This is one of the top-specification Mini EVs to lease or buy currently.

Mini ELECTRIC HATCHBACK 135kW Cooper S Level 3 33kWh 3dr Auto

In terms of the car shown, the Mini ELECTRIC HATCHBACK 135kW Cooper S Level 3 33kWh 3dr Auto, this is based on the following configuration:

Midnight Black II Special Metallic Paint
MINI Yours lounge leather - Carbon black with sport seats
Piano black interior trim
17" Roulette spoke alloy wheels
Body coloured roof and mirror caps
Two charging cables - 3 pin plug adapter (mode 2) and AC public charging (mode 3)

Mini ELECTRIC HATCHBACK 135kW Cooper S Level 3 33kWh 3dr Auto Electric Car Leasing Advice