Electric car leasing: how does it work?

Looking to lease an electric car but you are a bit muddled by the concept? Read on for a full explanation of how EV leasing works

By James Wilson October 10, 2022

Wondering how electric car (EV) leasing works is natural, after all, electric cars are very new to a lot of drivers. To help shed a little light on the subject, BuyaCar has brought together this guide to walk you through the entire world of electric car leasing. Starting with the ins and outs of battery leasing, before moving on to sections covering topics such as running costs, charging and refuelling, and the pros and cons of leasing.

Electric car leasing explained

Understanding electric car leasing starts with getting to grips with the kind of vehicle that can be leased. Most commonly, it is only new cars that can be leased but there are some companies that will lease drivers a second-hand vehicle.

Lease deals themselves are structured as follows. There is an initial payment that is paid at the beginning of a lease (that you don’t get back), which may also include an admin fee. After which, there is an agreed number of monthly payments. Once all payments are made and the lease comes to an end, the car is simply handed back to the organisation that it was sourced from. A key part to understand here is that at no point does the person or company leasing the car actually own it.

Mileage allowances are a huge part of lease agreements, as they directly impact monthly payments. Opting for a more modest annual mileage will help reduce the cost of a car lease, although there are other ways of reducing the cost of a car lease. These are agreed upon before you sign up to a lease and set a limit to the number of miles a car is allowed to travel during your time with it. Typically, the mileage allowance is an annual figure but it doesn’t actually matter when you travel the miles during your agreement. Just make sure that at the end, the average yearly mileage is below the limit.

If you exceed the allowance nothing happens to the car, but you will have to pay a surcharge when handing it back at the end of the lease. The surcharge is commonly between 4p and 14p per mile but there can be a higher rate if you surpass the limit by a significant margin. Checking the exact details around extra mileage is very important before you legally agree to a lease deal.

Most popular electric lease cars

Tesla Model Y

Used deals from £31,990
Monthly finance from £420.92*

Hyundai Kona Electric

Used deals from £10,500
Monthly finance from £186.68*

Vauxhall Corsa-e

Used deals from £4,200
Monthly finance from £143.40*

Electric car battery leasing

Although battery leasing sounds mighty similar to electric car leasing, they are very different. Battery lease agreements are where a driver pays a monthly fee for the battery in their car and there is no set end date – the lease could (in theory) go on indefinitely. Such agreements were introduced to help prevent drivers from worrying about large battery packs not lasting very long, as these leases promise to replace the battery once its capacity drops below a certain percentage of its ‘as new’ rating.

Agreements like these were rare and are no longer offered on new electric cars, as so far EV batteries are proving to last very well. As a result, anyone leasing an electric car need not worry about battery leasing.

Electric car leasing: running costs

Leasing an electric car should mean rock-bottom running costs. One reason for this is the fact that lease agreements are normally for new or nearly new cars. This means they are less likely to need major repairs and if there are any faults with the car, they should be covered by the warranty provided by the car manufacturer. In addition to this, electric cars should be even less likely to need work compared to a petrol or a diesel vehicle as they have fewer moving parts to wear out.

Furthermore, up until a car is three years old, it does not require an MOT. As many lease deals won’t run longer than 36 months, you can wave goodbye to spending time finding a reputable garage and wondering if they charged you a fair amount.

Moving on to insurance, this typically isn’t included in a lease deal. There are sometimes exceptions to this, though. For example, Volvo offers a subscription for its cars – it is called ‘Care by Volvo’. This is very similar to a lease in that a person will pay a monthly fee for a set period of time and at no point actually owns the car, although there are some interesting differences.

As an example of this, there is no initial payment with Care by Volvo and the monthly fee includes insurance, servicing, and also maintenance. The last one is important as Volvo will also replace components such as tyres and brake pads, which are normally excluded from maintenance packages. You can also cancel the subscription early, but there is a three-month notice period. When compared directly with a traditional lease, Care by Volvo can seem very expensive, but when you consider all the additional benefits, it starts to make more financial sense.

One last running cost to mention is road tax, which is most often paid by the organisation a car is leased from. As electric cars are exempt from road tax, though, this cannot really be considered a bonus as it is free anyway.

Electric car leasing: charging and refuelling

When leasing an electric car it is the responsibility of the driver to charge aka refuel the vehicle and how this is done is up to them. They could use a three-pin plug as found in all UK houses but because of the significant amount of electricity required to charge an EV, this isn’t recommended. The risk comes from potentially overloading a regular plug, as a car battery will draw maximum power for hours, which can lead to overheating and a potential fire.

The best option is to get a dedicated car charger installed. For most domestic properties the maximum output for a charging point will be 7kW. Any higher than this and you will likely need to upgrade the power supply to your house, which gets expensive and disruptive. A 7kW charger is plenty for replenishing a battery’s charge overnight, although electric cars with large batteries (at least 75kWh) might struggle to get 100% charged overnight if flat when plugged in.

Some drivers are taking charging to all new levels by installing technology such as solar panels and home batteries. The latter are large batteries that are mounted somewhere in your house (the garage is often best). If you have solar panels as well, they can generate electricity to store in the home battery for when you need it – such as charging your car at night. This has the added perk of saving you money on the ‘fuel’ for your car.

When driving an electric car, it is a good idea to think about the places you most commonly visit and maximise the charging network available. This is because, in some towns, there are shops, restaurants and leisure centres that can provide free charging. These save you money and handily keep your car topped up throughout the day.

Similarly, if you are going on a longer journey and need to top up the battery, finding a commercial charger with a high power output (such as 50, 75 or 100kW, or even more) cuts down the length of time you will be waiting for range to be added. Not all electric cars can charge at higher rates, though, so be sure to check the specification of the EV you are driving.

There are some great (and free) resources online that can help with finding chargers and planning routes. Zap-Map is one of the most popular, which can be accessed as a website and a smartphone app. A handy feature of Zap-Map is that it will show the type of charger connector (the European standard is called ‘Type 2’ but there are a few other types) available at each charging point and whether or not it is in service. Turning up to a broken charger is very frustrating...

Benefits of electric car leasing

There is a wide and wonderful collection of benefits to electric car leasing. The first is convenience. Forget about MOTs, forget about unexpected repairs and forget about niggly tasks like taxing your car – they are all done for you. You also don’t need to stress about selling or part exchanging your car at the end of the lease, simply hand it back.

One of the biggest potential risks to owning an electric car is the battery. EVs have not been around long enough or been used by enough people to provide cast-iron data on how long batteries will last, how easy/expensive they are to replace and what impact a failing or replacement battery will have on the residual value of a vehicle.

That said, most electric cars come with an eight-year warranty on the battery and so far there are yet to be widespread reports that batteries are failing before their warranty runs out. As lease deals won’t run past the end of the battery warranty, drivers can rest assured that issues with the high-voltage electronics should be covered by the manufacturer.

Another benefit to leasing an electric car (or any car for that matter), is that it makes managing your monthly costs dead easy as most of your motoring outgoings are wrapped up into one payment. Insurance will need to be factored in and depending on the length of lease and the expected mileage you will travel, a small amount of money will need setting aside for things such as replacement tyres.

Leasing a car can often mean lower monthly payments when compared to other finance methods, which is great news for anyone on a tight budget. This is mostly a result of there being no option to purchase the car at the end of the agreement or to have paid for the vehicle in full by the end of the agreed term.

Another financial benefit to leasing is there is no depreciation to worry about. Strictly speaking, the lease payments cover the cost of depreciation but there is no guarantee that a car won’t lose value more quickly than first expected, potentially costing the owner hundreds if not thousands of pounds. By leasing a car, any risk associated with a car being less valuable than expected by the end is the responsibility of the organisation that supplied the car.

Moving on to an environmental benefit, leasing an electric car is one of the easiest ways to drive a car with zero tailpipe emissions. It is important to note, though, that if you charge using power from a non-renewable source, e.g. gas or coal, an electric car still has a carbon footprint, it is just that the emissions are at the power station and not the exhaust.

As the UK Government is trying to get more drivers to use electric cars, there are financial incentives for using an electric vehicle. One of the main perks is lower company car tax. Company car drivers can make huge savings (possibly into the thousands of pounds) by driving an electric car for work. The savings will depend on how you lease your company car, whether that be through your employer, through a salary sacrifice scheme or through a private lease company.

Another financial bonus to leasing an electric car is you get to drive a car that is exempt from levies such as the London Congestion Charge. Although the congestion charge is one of the more well-known inner-city schemes, there are similar initiatives being introduced or planned in a large number of cities in the UK. Sticking with the London Congestion Charge, it is £15 per day, which soon adds up if you are driving through the middle of London each day.

On a practical note, in some regions, electric cars can use special lanes that are less likely to have traffic in them. For example, some bus lanes allow electric cars to use them. In theory, this should save you time on journeys in busy areas.

Downsides of electric car leasing

Leasing an electric car isn’t all marshmallows and smiles, as there are some negatives. One is that you will never own the car. While this might not be considered a negative by some, if you ever run into financial trouble (for example you lose your job) you will need to continue funding the monthly payments.

Next, not owning the car means that if a vehicle increases in value, you won’t see a penny of this but the company you lease it from will.

In addition to the above, you can be faced with a repair bill at the end of your lease. This will be for anything that isn’t classed as fair wear and tear. If you owned the car, you could make a decision to ignore a dent or an overly scuffed alloy wheel but with lease cars, you will have to pay to put right any excessive damage.

While mileage limits can help you secure rock-bottom monthly payments, having a mileage limit can be frustrating, especially as some people get quite stressed about surpassing their annual limit.

Finally, you aren’t normally allowed to modify a car you lease. Whether this be putting flame graphics down the side, a more sporty exhaust or remapping the car’s computers for more performance, changes to a car are generally not allowed.

Electric car leasing: add-ons

Some of the bigger leasing companies provide a range of ‘add-ons’ when leasing a car. These aren’t strictly necessary for a lease to be agreed, but they can be bundled in at the same time. On top of forging these options, it is possible to forgo them altogether.

One additional item we strongly recommend sorting is a charger. As touched on previously, electric cars can be plugged into a normal three-pin socket, however, it is safer and faster to get a dedicated electric car charging point. It is worth shopping around as occasionally lease deals crop up that include a charger or at least a discounted one. Failing any deals being available, you will need to organise a company to come and install a charger for you.

*Representative PCP finance - Ford Fiesta:

48 monthly payments of £192
Deposit: £0
Mileage limit: 8,000 per year
Optional final payment to buy car: £2,923
Total amount payable to buy car: £11,926
Total cost of credit: £2,426
Amount borrowed: £9,500
APR: 9.9%

BuyaCar is a credit broker, not a lender. Our rates start from 6.9% APR. The rate you are offered will depend on your individual circumstances.