Leasing vs. Buying an Electric Car in 2025

Quick Facts About Leasing vs. Buying an Electric Vehicle 

• Some automakers offer $7,500 in EV leasing incentives, even if the car doesn’t qualify for the tax credit when you buy.
• Good inventory with discounts and incentives puts shoppers in a good situation.
• Financing and leasing interest rates remain higher than normal.

As we consider the question of whether you should lease or buy an electric car, we will pretty much approach the lease-vs.-buy issue as we normally do. That is, the reasons for leasing or buying a pure electric vehicle (EV) are about the same as for a gas-powered car with an internal combustion engine (ICE). For our purposes here, we will assume you’ve done all the research and settled in your mind the overall question of driving an electric car versus an ICE vehicle. In other words, you are dead set on an EV.

Should you lease or buy in today’s automotive and EV-friendly climate? That’s a somewhat different matter. As you read through this article, we will summarize the current automotive market and provide some pros and cons for buying and leasing an electric car.

• Today’s Automotive Environment
• What’s the Difference Between Leasing and Buying?
• What About Leasing or Buying a Used Electric Car?
• Should You Lease or Buy an Electric Car in 2025?

Today’s Automotive Environment

Today’s automotive climate is feeling pretty good for car shoppers. Dealers continue to discount their inventory, and lenders are making it easier and less costly to borrow money. Here are some factors influencing the EV market and auto market as a whole.

New Car Inventories

According to Kelley Blue Book’s parent company, Cox Automotive, new car prices are almost steady as dealer inventories reach near-normal levels. However, it remains a mixed bag, depending on the brand. Some makers, including Dodge, Ram, Ford, and Jeep, are seeing inventories well above the national average of 85 days’ supply. Not every brand shares that problem. The supplies from other automakers like Toyota, Honda, Subaru, and Kia are stubbornly tight.

In October, the new electric vehicle days’ supply was 101 days, a decrease compared to the same period last year, indicating an overall tightening of supply year over year. Shoppers are buying: Last month, new EV sales reached 106,155 units, pushing the year-to-date total to over 1 million units.

This growth was spurred by incentives and leasing options, with incentives equal to almost 14% of the average transaction price. Additionally, year-to-date through October, new EV sales have risen by 6.8%.

Interest Rates

Cash buyers don’t worry about interest rates, but most of us borrow money to buy a new car. There’s good news for those leasing financing car loans. The Federal Reserve cut interest rates at its last two meetings, and it projects that a third cut is likely coming.

Lenders haven’t lowered their rates as much as the Fed has, but that’s normal. Those cuts take time to reach auto loans for car shoppers, so be patient if you can, as rate decreases should ripple through the economy over the next few months into the first quarter of 2025.

Higher car loan and lease interest rates increase a vehicle’s cost to own. Higher interest rates forced some buyers with bad credit ratings out of the marketplace. Consequently, carmakers started focusing on and producing higher-priced models. The average transaction price of a new electric car in October was $48,623, according to Cox Automotive data. Considering that Experian says the average interest rate on a 60- to 72-month auto loan is now about 6.86%, it’s bound to give you pause. Even with a 20% down payment ($9,725) on that average transaction price above on a 60-month loan at 6.86%, it will still work out to a $768 monthly payment before taxes.

MORE: What Are the Benefits of Driving an Electric Car?

What’s the Difference Between Leasing and Buying?

One noteworthy difference between leasing and buying is monthly leasing payments are usually less than loan payments. This is because the car is yours when you pay off a loan. However, when you complete a lease, you turn in the keys with nothing to show for years of payments. In reality, leasing is just glorified renting.

Other differences include annual mileage caps, early termination penalties, and usually, much higher credit scores required by leasing agents, among other negatives. You can check out everything you need to know about leasing in Kelley Blue Book’s Leasing Guide.

MORE: Hidden Costs of Owning an Electric Car

Pros of Buying an Electric Car

• Equity. Whether you pay cash or finance your electric car purchase, you will eventually have equity in the car. In the case of cash, that equity is immediate. If you finance, you begin to gain equity at some point along the way, and you will own the vehicle outright when the loan is paid in full. Use our car payment calculator to see an estimated monthly car payment for either a new or used electric car.
• Customization. If you want to make your electric vehicle stand out or personalize it, you may customize it to your liking. You can change the wheels, install a leather interior, or apply a protective wrap to the exterior. But because a leased car is not yours and won’t be when the payment terms are fulfilled, it must be turned in as you received it.
• Freedom. At any time during the terms of your loan, you can sell or trade in your EV to acquire another vehicle. As long as you pay off any outstanding balance to the lender, the car is yours to do as you please.
• Refinance. If, at some point during the electric vehicle loan, you decide you can get a better interest rate or want to extend the payments for another year, you can refinance the loan. Again, if the refinancing isn’t through the same lender, any outstanding balance will need to be paid.

Cons of Buying an Electric Car

• Higher payments. Your monthly loan payment amount depends on several factors, like the length of the loan, the down payment amount, and the interest rate. However, a monthly loan payment will generally be more than a monthly lease payment. This difference could be hundreds of dollars.
• Bigger down payment. Because electric cars often cost more than ICE vehicles, buyers will need to come up with a bigger down payment. That down payment could be hefty if your credit comes with a few dings.
• Underwater. Although you can sell or trade your electric vehicle at any time, you always run the risk that you owe more than it’s worth. That’s also called being underwater or upside down. In other words, you must make up the difference between the amount you receive for the car and what you still owe. The dealer can roll that difference into the new financing when trading it in on another vehicle. However, that means you will be even more upside down in your next car.

MORE: How Much Does It Cost to Charge an Electric Car?

Pros of Leasing an Electric Car

• Parade of new EVs. For drivers who always want the latest and greatest, leasing allows for replacing an electric car every two or three years, depending on the term length. This is usually a painless process of turning in your current EV, signing another lease, and driving off in a new car.
• Little skin in the deal. Typically, a consumer with better-than-average credit can get into a lease with minimal upfront money. Leasing companies often only require a deposit, a fee or two, and the first month’s payment. Some special leasing deals offered by carmaker financing companies, like Ford Motor Credit and Nissan Motor Acceptance Company, will run leasing deals that also require a small amount of cash down. However, generally, you can get into a lease with less upfront cash than a loan requires. Use our lease payment calculator to compare monthly lease costs to monthly car loan costs.
• Under warranty. Leasing provides lasting warranty protection because most new EV leases are for two or three years. Every new vehicle factory warranty on the market is for a minimum of 36 months or 36,000 miles. In other words, the factory warranty will always cover a leased EV if you don’t exceed the annual mileage cap.
• No fuss. Unless you’ve mistreated your leased EV or exceeded the annual mileage cap, you can hand over the keys and walk away when the lease ends. Even if the EV is worth less than the lessor projected it would be at lease end, you won’t owe a penny more.
• Option to buy. You can buy the electric vehicle at the end of a lease rather than turn it in. The lease-end purchase price is contractually stated in the lease. Here’s the good news: Because the lessor projects the EV’s projected book value at the end of the lease, you may find buying the vehicle a bargain. Why? If the lessor projects wrongly and pegged the value at the end of the lease to be lower than the future book value, you get to buy it at that lower price.

Cons of Leasing an Electric Car

• Zero equity. The greatest negative of leasing an EV for the average consumer is that the lessee has nothing at the end of the lease. In other words, the lessee doesn’t have a vehicle and doesn’t have anything to put down toward acquiring another car.
• EV bondage. While offering a sense of freedom when handing over the keys and walking away at the end of the lease term, leasing bounds the lessee to the electric vehicle for the duration of the lease. Unlike financing through a loan, which allows the buyer to sell or trade in the EV at any time, a lease contract binds the lessee to the vehicle for the life of the lease. Sure, you can get out of a lease early. But it will usually involve hefty early termination penalties. Sometimes, these penalties include paying the total of any remaining monthly payments.
• Wear and tear. Leasing is really extended renting. In other words, you are essentially borrowing the vehicle and paying for that privilege. The leasing agent expects you to return the car in the condition it was in when you borrowed it, minus normal wear and tear: a nick here and a small ding there. Anything a lessor deems beyond normal wear and tear will cost you, including interior and exterior damage. What is “normal” is subjective and up to the lessor. The lessor will charge you for any damage considered above its definition of normal.
• Mileage cap. Lease contracts include an annual mileage cap restricting the number of miles a lessee can drive a car each year. Exceeding that cap triggers a per-mile charge for each excess mile. The average cap is 12,000 miles per year or 36,000 miles over a 36-month lease. A typical penalty is about $0.25 per excess mile. Therefore, if you exceed that 36,000-mile cap by 4,000 miles, the lessor will assess an extra $1,000 at the lease termination.

PRO TIP: Whether you buy or lease an EV, there’s a chance it could qualify for federal and state tax credits. However, navigating the amount of the credit and which vehicles qualify can be confusing. It’s even more difficult if you lease your electric car. The number of electric car models that still qualify for tax credits is decreasing, but if you and your EV meet all the qualifications, the savings can be as much as $7,500 off the price. Moreover, some states and localities offer additional incentives. Check out the latest updates in Kelley Blue Book’s How Do Electric Car Tax Credits Work and Electric Car Rebates and Incentives: What To Know by State.

MORE: Do Electric Cars Have Transmissions?

What About Leasing or Buying a Used Electric Vehicle?

You may consider leasing or buying a used EV, depending on the mileage and age. Carmakers warranty EV batteries for at least eight years or 100,000 miles. Consequently, if there is still time and miles left on the battery warranty, a used EV may be a good deal.

Used EV sales continued to grow steadily, reaching 23,788 units and maintaining a 1.6% market share. Year-to-date through October used EV sales are up 63.5% compared to the same period last year. Last month, the used EV days’ supply was 48, comparable to the 46 days for ICE+ models. The supply remains stable month over month but is down 22.1% year over year, highlighting the tightening of used EV inventory.

When buying a used EV, you might consider if you qualify for federal tax incentives for cars under $25,000. If eligible, the credit is $4,000. Also, the used car must be at least two model years old and purchased at a dealership. The vehicle also only qualifies once in its lifetime. Used vehicle buyers can only qualify for one credit every three years.

MORE: Are Electric Cars Better for the Environment?

Lease or Buy an Electric Car?

We recommend buying over leasing for most car shoppers in a normal market. But this isn’t a normal market just yet. Furthermore, we’re discussing EVs. On average, EVs carry a higher price tag than comparable ICE vehicles and depreciate more quickly. Consequently, leasing’s historically lower monthly payments can help those in the market right now. Furthermore, electric vehicle owners tend to be more sensitive to the newest technology. Leasing allows drivers to regularly move on to the latest tech in the newest electric vehicles with very little fuss.

Advantage in 2025: Leasing.

Editor’s Note: This article has been updated since its initial publication.