Why It’s Still Not Worth Renting an Electric Car

Electric vehicles (EVs) are becoming increasingly popular as more models hit the market and prices fall. Although let’s face it: Even with the price cut by thousands of dollars, the cost of a Tesla is still prohibitive for most drivers.

However, with the growing popularity of electric vehicles, there are arguments for renting electric vehicles . And who wouldn’t want to drive a shiny new car for a lower monthly payment instead of financing it – even if the latter scenario means you’ll theoretically own it someday? Unfortunately, it’s not that simple. While there are many incentives for leasing an electric vehicle, it may not be the most cost-effective route for most drivers. Here’s what you need to know about buying an electric vehicle versus leasing one.

Buying and renting any car

Before we dive into the world of electric vehicles, let’s look at the buy versus lease debate. Buying a car means you own it and invest in it through monthly payments (if you finance the purchase); Leasing essentially means that you rent a car for a specific period of time ( usually two to five years ).

When you lease, you do not own the car. There are limits to how long and far you can ride it. You will always have monthly expenses and no control over modifications to your trip. However, people are attracted to leasing because of (1) lower upfront costs, (2) lower monthly payments, and (3) the opportunity to try out a new car every few years at the end of each lease term.

Here’s the rub: the promise of leasing is often misleading. When you factor in total car payments over the years, leasing can cost you more than buying a new car outright . So, to be clear: you should probably never rent a car. That being said, there are some additional considerations to consider when deciding whether to lease or buy when it comes to electric vehicles.

There are good reasons to rent an electric car

I hope I’ve learned by now that the tempting promise of lower monthly payments can be deceiving. However, there are a few unique reasons why you might still want to consider leasing an electric car.

You can choose your ideal electric car model

One of the main benefits of leasing is that it allows you to always have the latest model of electric vehicle. Electric vehicle technology is advancing rapidly, with each model year offering greater range and new features. Leasing allows you to trade in your electric car for a new one in just a few years, meaning you can upgrade it and take advantage of the latest innovations. (This is similar to buying a new iPhone after your two-year cell phone contract is up.)

You can take advantage of tax breaks on electric vehicles

In 2023, a federal non-refundable EV tax credit of up to $7,500 is available when purchasing an electric vehicle. But when it comes to purchasing, there are many more restrictions on that credit—both for eligible models and for buyers who will qualify for full value. For example, the car must be manufactured in North America, its battery components and minerals must meet specific supplier requirements, and the buyer’s income cannot exceed a certain amount.

So, here’s why leasing has become such a tempting proposition these days: the so-called ” EV leasing loophole .” Leased electric vehicles are exempt from many of the strict requirements to receive the $7,500 tax credit. This means leasing is a smart way to use that credit for a wider selection of vehicles. The catch: The tax credit belongs to the landlord, not you. When the dealer applies for the credit, they have the option of applying it to your lease to lower your monthly payments. This means you may see some or all of these much-coveted tax breaks, but in a different form, such as an overall reduced rental price. It’s the dealer’s choice—literally—and, without a doubt, the most compelling argument for leasing rather than buying an EV.

You can avoid costly EV battery replacements

Electric vehicle batteries wear out over time and may need to be replaced after 5-8 years. With a three-year lease, you won’t have to worry about that large replacement cost down the line. The leasing company will handle maintenance and battery replacement once you return your leased electric vehicle.

Reasons to avoid renting an electric car

While there are good reasons to rent, here’s why it may not be the most cost-effective route in the long run.

Costs are higher than they seem

I’ll continue to expand on this point: At first glance, monthly payments for an electric car lease may seem affordable. But lower monthly payments will actually hit you harder over time . When you factor in insurance (which is typically higher for leased models since the vehicle owner will have stricter requirements), energy costs and maintenance, the total cost of leasing an electric car is usually much higher than leasing a comparable gas-powered car. . Additionally, insurance premiums for electric vehicles are higher due to high vehicle replacement costs.

You won’t have an electric car

Leasing any vehicle means you won’t own it outright at the end of the lease. By purchasing an electric vehicle, you also miss out on potential rebates, tax credits, and other incentives available to buyers. As I mentioned above, the only way to ensure you realize the full value of the $7,500 federal tax credit is if you buy the car (and meet all of these conditions).

All types of vehicle rentals have restrictions

Lease agreements contain restrictive provisions. There are often mileage limits and there may be a charge of 20 to 30 cents per mile for going over. You may have to keep your car in pristine condition to avoid additional wear and tear costs. Most lease agreements also prohibit modification or customization of the vehicle.

Bottom line

There are many good reasons to lease an electric car, namely the loophole that allows you to take advantage of a tax benefit that would otherwise be unavailable. It’s up to you to decide whether all the benefits of leasing actually override my number one anti-leasing rule: You won’t actually save money in the long run.

To maximize savings and take full advantage of the benefits of owning an electric vehicle, you should purchase rather than lease your vehicle. If that’s not feasible given your car-buying budget, consider a more affordable hybrid or conventional car. In any case, avoid signing an electric car lease that you may regret later.