How to pay for an electric car: Incentives explained

Shopping for an electric vehicle (EV) is similar to shopping for a conventional car in many ways. There are various options to pay for your EV, and, like gas-powered vehicles, many pros and cons of leasing or buying a car remain true for EVs. However, there are a few additional factors to consider when purchasing an EV. In this article, we compare buying and leasing EVs, break down EV financing, and explain how incentive programs can factor into your savings.

Here's a quick breakdown of the pros and cons of both buying and leasing an EV:

Pros and cons of buying an EV

Pros and cons of leasing an EV

When buying an EV might be better for you.

Buying an EV means you're usually eligible for more incentives or rebates. While some states offer EV incentives when leasing, the amounts you get are usually lower than if you purchase one. Also, leasing any vehicle comes with restrictions, such as mileage limits, lack of customization, and strict rules regarding what you can and cannot do with the car. EVs are no exception. Buying an EV grants you the freedom to use your car however you intend to without worrying about exceeding your mileage allotment or racking up additional wear and tear costs.

When leasing an EV might be better for you.

Depending on your personal preferences, leasing may be advantageous, especially when it comes to EVs. While there are many more options available today, and range is increasing, even more new options are set to come out in the next two to three years. That said, if you lease an EV and then decide it's not for you a year later, you'll likely have to pay a hefty fee to get out of your lease early. A purchased EV, however, can be sold without penalty.

When it comes to getting something quickly, in some cases, if specific features or colors aren't something you have to have, you may be able to immediately lease an EV instead of waiting for delivery of a more customized model.

How EV ownership is changing over time

The good news is that some previous concerns, such as battery degradation and resale value, are proving to not actually be an issue. Forbes recently covered the topic of EV resale value and found that many EVs once thought to reduce in value more quickly than comparable gas-powered vehicles, are actually outperforming those now. That's because the range of an EV (how far it goes on a full charge) is not changing as quickly as the early years of EVs.

Also, while EV batteries, like any battery, do degrade over time, in most cases, it doesn't present a huge negative impact on your EV's range and performance in the first few years. Additionally, many EVs come with battery warranties lasting eight to 10 years, so if there is an issue with your EV's battery in that timeframe, your manufacturer will usually repair or replace it for zero or little cost. So, even though an EV battery is a costly part to replace, you won't need to worry about covering it yourself.

Ultimately, the decision to buy or lease an EV comes down to your personal needs and preferences in a vehicle.

The Inflation Reduction Act (IRA), signed into law by President Biden in August 2022, shifted the structure of federal incentives for EVs. Under the new law, you can receive a tax credit worth $7,500 on your purchase of a new EV through the Plug-in Electric Drive Vehicle Credit – as long as it was assembled in North America and meets certain criteria. Overall, the IRA expands incentives for climate-friendly investments, but when it comes to EVs, income, and vehicle cost requirements actually disqualify some consumers and EV models that were previously eligible for the EV tax credit.

Under the IRA, used EVs are also eligible for federal incentives for the first time! As long as the model is at least two years earlier than the calendar year of purchase, it costs less than $25,000 and is the first resale of the vehicle, used EVs are eligible for a tax credit of up to $4,000 or 30 percent of the sale price (whichever is lower). Similar to the tax credit for new EVs, purchasers must meet certain criteria to qualify. Lastly, the IRA allows for both EV tax credits to be transferred to you at the point of sale rather than having to wait to claim it on your taxes (though this benefit is expected to roll out a bit later in January 2024).

Importantly, leased vehicles do not qualify for the federal EV tax credit (but state incentives and rebates could still apply, so make sure to look into your local programs, too!). Instead, the credit goes to the dealer. If you plan to lease an electric vehicle, ask about any incentives it's eligible for and negotiate your lease accordingly. Although you may not receive the tax credit directly, it could still be used as leverage to negotiate a lower monthly payment.

State EV incentives

In addition to the federal incentives available, your state may have additional rebates or credits available. Check with your state to see what local EV incentive programs are available.

EV charger rebates and incentives

Any EV charger installed in 2022 is eligible for the Alternative Fuel Vehicle Refueling Property Credit – equal to 30 percent of EV charger installation costs (up to $1,000 for individuals and $30,000 for businesses). However, starting in 2023, only EV chargers installed in a population census tract where the poverty rate is at least 20 percent or in an area census tract where the median family income is less than 80 percent of the state median family income level will be eligible for the credit. For more information on EV charging, check out how to install a home EV charging station.

If you're not looking to pay outright for your EV, traditional auto financing options are available for electric vehicles, too. The same process applies to acquiring a loan for an EV – you find an auto lender, apply for the loan, the lender or dealer will usually run your credit history and credit report, you'll confirm the interest rate and terms you're approved for, and you'll sign the contract. You'll then start making payments – usually within about 30 days. This timeframe will vary by lender.

In addition to traditional auto loans, special loans for climate-friendly vehicles may offer lower interest rates, longer repayment periods, and other favorable terms for EVs. Green auto loans are not available at every traditional auto lender, but as the transition to clean energy continues, more and more institutions are recognizing their value. Currently, you're more likely to secure a green auto loan through a local credit union or green bank. Historically established at the state and local levels to help achieve the climate goals of that region, green banks are specialized lenders created to provide financing opportunities to accelerate the transition to clean technology – including EV loans. As various components of the IRA roll out, it's also expected that federal-level green banks may also be created.

After you purchase it, the cost to charge your EV depends on a few factors, including the type of EV you have, where you're charging it, and how long you’re charging it. It's no secret that the fuel savings EVs offer are one of the most enticing benefits of making the switch to electric driving. There are two main considerations with EV charging – how you'll charge at home and then on the go.

Paying for EV chargers

For starters, there are three different levels of EV chargers – Level 1 being the slowest and Level 3 being the fastest. While you may have to pre-plan where you'll recharge on a long road trip, home EV chargers offer you the convenience of charging your car while you sleep (and when electricity rates tend to be lower).

Pricing for EV chargers varies based on features and brand, and if you want to install a Level 2 EV charger to more quickly charge at home, you'll usually need to pay for a licensed electrician to install it (and potentially help with wiring or electrical setup needs to get power to the spot in your carport or garage to charge your EV). According to Qmerit, most standard EV home charger installations cost between $799 and $1,999. Additionally, depending on your home's electrical panel, floor plan, and wiring, you may need additional electrical work performed, which could increase your costs.

Buying or leasing a new car starts before you set foot at a dealership. It is especially important to do your research when adopting new technology like that of an EV – and we're here to help! Browse EVs, discover EV incentives, and compare available EVs on the EnergySage EV Showroom. For more information on EVs, you can also check out our electric vehicle FAQs. And, if you want to make the most of your EV savings, consider powering it with solar energy generated right at home.