Article By Richard Aucock

Your guide to EV finance and insurance

If you’re buying an EV, you’ll be looking at the finance options open to you. Our guide to EV finance and insurance should help you on your way.

How does EV finance work?

Rest assured: EV finance works in exactly the same way as traditional car finance. You don't need to approach the buying process in a different way, and many of the terms will be familiar to car buyers.

EVs do, however, cost a little more to buy up front – which is why so many people choose finance to secure their next EV, rather than more traditional methods. The advantages are offsetting the new car cost over regular monthly payments… and then benefitting from the significantly cheaper running costs EVs bring.

Buying an EV using finance is the an increasingly popular option for many

Are EVs expensive?

EVs are more expensive than their petrol or diesel counterparts, but the gap is narrowing. The Dacia Sandero is the cheapest car in the UK, with a starting price of £7,995. You’ll need to spend at least £20,000 to buy a new electric car, although the Renault Twizy quadricycle costs less than £12,000.

The government’s Plug-in Car Grant of £2,500. Is available for all new EVs priced under £35,000.

The Smart Fortwo EQ is one of the cheapest EVs in Britain

What are the EV finance options?

The way EV finance works depends on whether you have chosen PCH, PCP or HP. These are the most common forms of EV finance and they work in much the same way as if you were financing the purchase of a petrol or diesel car.

Personal contract hire (PCH)

This is essentially a personal lease, as there is no option to buy the EV at the end of the contract. The monthly payments are likely to be lower, but they’ll be based on a predicted mileage, so there are stiff penalties if you exceed the limit. At the end of the contract, you simply hand the EV back.

Personal contract purchase (PCP)

With PCP, you’re paying for the car’s depreciation. That’s the difference between the value of the car now and what it’ll be worth at the end of the contract, typically three or four years.

Say an EV costs £30,000 and is expected to be worth £15,000 after three years. That leaves £15,000 to finance, some of which is required upfront as a deposit, while the rest is due in instalments, at a fixed monthly rate.

The monthly payments are lower than traditional EV finance, because you’re not paying for the final balloon payment. At the end of the contract, you have the choice of paying the remaining £15,000 to buy the car outright, handing the EV back, or swapping it for a fresh deal.

Hire purchase (HP)

HP is the most traditional form of EV finance. A hire purchase involves spreading the cost over fixed monthly instalments – usually 12 months to five years. There’s normally a small deposit, but at the end of the contract, the car is yours, with nothing more to pay.

Other specialist types of finance are being developed too, all to make EVs more attainable to everyday motorists.

Which is the right EV finance for you?

It all depends on your personal circumstances. EV technology is developing at a rapid rate, so tying yourself into a lengthy contract might not be a good idea. EV technology is moving on all the time.

A short lease will give you the opportunity to experience an EV for a couple of years without worrying about depreciation or the car becoming outmoded. Equally, a PCP deal should mean that you can afford a new EV, especially as prices continue to fall.

Make sure you choose the right EV finance package for you before signing up

Is EV finance expensive?

Because EVs tend to cost more than petrol or diesel cars, the monthly repayments tend to be higher. This is likely to change as we edge closer to the 2030 ban on the sale of new petrol and diesel cars.

And EVs are significantly cheaper to run. Free Vehicle Excise Duty (VED) is one advantage, as is the government’s £2,500 Plug-in Car Grant. Maintenance costs should be 70 percent lower over a car’s lifetime. And although your domestic energy bill will increase, you can save more than £300 by switching to the cheapest fixed-rate energy tariff.

Many car dealers have clever finance calculators to show EVs cost little more than regular cars – and for some, they're already cheaper to own

What about EV insurance?

EV car insurance should cost no more than that for a regular car these days. Mainstream companies are getting used to them – and if you do get a pricey quote, simply go to a specialist EV insurer who will usually be more competitive.

There is no reason for an EV to cost more to insure than a regular car… and plenty of reasons why they should be cheaper!

Not all providers offer EV insurance, but using a price comparison website should provide a good overview of the options open to you. Don’t base your decision on price; while saving money is to be encouraged, you should consider what’s included in the price and how well the company is likely to deal with a claim.

In addition to the standard levels of cover (fully comprehensive; third-party, fire and theft; third-party only), an EV policy should come with some or all of the following extras:

●Recovery to the nearest charging point in the event of running out of charge. Others offer a roadside charging facility to get you moving again.

●Cover for the charging cables if they are lost, stolen or damaged.

●Battery cover for accidental damage, theft or fire.

Is EV insurance more expensive?

You’re likely to pay a little more to insure an EV than you would a petrol or diesel car. The cost of cover is based on a number of factors, including the driver’s age, occupant, postcode and experience. It’s also based on the price of the car and how much it will cost to repair in the event of an accident.

Batteries, electric motors and the supporting software are costly to repair or replace, which increases the cost of cover.

EVs can cost a little more to insure than a conventional car, but the gap is narrowing all the time

Can you give me an EV insurance example?

Take the Seat Mii city car. Some versions fall into the lowest insurance group (1), whereas the Mii Electric gets a group 12 rating. All versions of the Tesla Model S get a group 50 rating – the same as the world’s most expensive and exotic supercars.

Remember, the cost of insurance is offset by the lower running costs, while shopping around for quotes should help to lower the annual premium.

The Seat Mii Electric doesn't benefit from the same ultra-low insurance group as the regular petrol Seat Mii
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