As fuel prices continue to rise and the effects of climate change become increasingly present in our daily lives, it’s easy to see why electric vehicles are rising in popularity.
With the latest technology, greatly improved range, and the promise of a quiet and comfortable drive, electric cars have a lot to offer. But that luxury comes at a cost—the average electric car in the UK costs £44,000, which is more than many of us can afford upfront.
Enter electric car finance, which can help to spread that cost over a series of more manageable payments. But which form of car finance is best?
In this guide, we’ll cover everything you need to know about one of the most popular ways to finance an electric car—a personal loan.
Can I get a loan to buy an electric car?
Yes, you can take out a loan to pay for an electric car. As electric cars tend to be more expensive, you may need to have a higher credit score, or opt for a homeowner loan secured against your property.
What is an electric car loan?
An electric car loan is essentially just a standard loan, which is used by the borrower to pay for an electric vehicle purchase.
Some lenders may market products as electric car loans, but they work in exactly the same way as any other loan you would take out for a car.
There are two types of loan that can help you to pay for an electric car:
How does an electric car loan work?
The way an electric car loan works, much like any other loan, will come down to whether it is a secured or unsecured loan.
Unsecured loans for electric cars
With an unsecured loan, also referred to as a personal loan, lenders rely on your credit score, your income, and your borrowing history to determine whether you are eligible.
If they deem you to be a reliable borrower, they will offer what they feel you can afford to repay, after which you can choose to accept the terms and receive the funds.
You can then use the loan to pay for a brand new or used car, which you will legally own outright.
Once you have entered the personal loan agreement, you will be required to make monthly repayments according to the set schedule.
Once the loan value has been repaid, along with any interest and additional fees, the contract will come to an end and your account with the lender will be closed.
Secured loans for electric cars
With a secured loan, also known as a homeowner loan, the debt is secured against your home, meaning it can act as collateral in the event that payments are missed.
This provides lenders with additional security and, as a result, they rely less on credit scores to evaluate eligibility and are more comfortable lending higher amounts.
Outside of the additional paperwork and admin involved with securing a debt against your property, which can sometimes be referred to as a second charge mortgage, the remaining process for a secured loan is largely the same as that of an unsecured loan.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
Am I eligible?
Your eligibility for an electric car loan will vary between lenders, and depend on whether you are applying for a secured or unsecured loan.
Having said that, most lenders will typically include the following criteria in their eligibility check:
- The amount you are requesting to borrow
- Your income
- Your credit history
- Your debt-to-income ratio (the amount you currently pay towards existing debts)
If you are applying for a secured loan, the influence of these factors will be slightly lower, as your property provides additional reassurance and security for the lender.
If you want to check your eligibility for an electric car loan, it’s quick and easy to do so with our free eligibility checker.
Pros and cons of electric car loans
There are a number of benefits to taking out a loan to pay for an electric vehicle, we’ll summarise the key points below.
Advantages of EV loans
- Own the vehicle outright from the beginning;
- A strong credit rating will result in low interest compared to other forms of car finance;
- As you own the electric car, you can choose to sell it at any point—of course, providing you continue to repay the loan in full;
- Generally a cost-effective way to pay for a vehicle, paying in cash also means you may be able to negotiate a better price with the dealer;
- If applying for an unsecured loan—you don’t need to be a homeowner to apply;
- If applying for a secured loan—you’re able to borrow higher amounts and with longer repayment terms than you’d get with an unsecured loan.
Disadvantages of EV loans
- You can’t trade the electric car in for a newer model at the end of the loan;
- Unsecured loans have lower borrowing limits, so may limit your options;
- If applying for an unsecured loan—your eligibility and the terms of the loan will depend on your credit score;
- If applying for an unsecured loan—you must be able to keep up with monthly repayments, otherwise it can impact your credit score;
- If applying for a secured loan—only available to homeowners;
- If applying for a secured loan—your home may be repossessed if you are unable to keep up repayments on your mortgage or any other secured debts.
Can I get a government grant for my electric vehicle?
It’s no secret that shifting to greener transport solutions is a high priority for many.
In some cases, government schemes may exist to offset some of the initial expense and encourage more people to invest in an electric vehicle.
In the UK, only Scotland currently has government schemes in place to support transitions to electric vehicles.
Scotland: Electric car loan government grant
For a limited time, the Scottish government was offering support for the purchase of new electric vehicles.
Sadly, this older Scottish government scheme for new EVs has now closed, but support is still available for used EVs. So if you’re in Scotland, and don’t mind it being second-hand, you might be able to find support to cover the costs of your electric car.
How to finance an electric vehicle with a loan
To finance an electric car with a loan, head to our free loan eligibility checker and provide a few details about yourself and what you’re looking for.
We’ll then run a soft search against your credit report, to check your eligibility across a number of lenders without impacting your credit score.
The tool will then present you with a number of suitable loan providers, which you can explore and compare at your own pace.
If you find a provider you like the look of, it only requires a couple of clicks to then make a formal application for the electric car loan.
The lender will review the amount you have requested, along with your details, and run a hard check on your credit report to evaluate your eligibility.
If you are successful, they will present you with an offer, which will include:
- The amount they are offering
- The interest rate
- The loan term (the period over which the loan will be repaid)
- The total repayable amount at the end of the loan
If you choose to accept the offer, the funds will be sent to your account and you can use the loan to purchase the electric car.
Then, it’s simply a case of making the monthly repayments as set out in the agreement. Once the full value of the loan has been repaid, plus any interest and additional charges, the lender will close your account.
Other ways to finance an electric car
While personal loans can be a popular way to finance an electric car, there are many other options available for you to consider too.
A hire purchase agreement is a form of car finance that allows you to pay for a car while you use it.
You pay a deposit, followed by a series of monthly payments, at the end of which you have the option to own the car for an additional fee.
Due to the way that hire purchase agreements are calculated, they will have higher monthly payments than other options like PCP, but a lower fee to own the car at the end.
Personal contract purchase (PCP)
Personal contract purchase (PCP) agreements are similar to hire purchase, in the sense that they both allow you to use the car while paying in a number of monthly instalments. Like hire purchase, PCP provides the option to purchase the car at the end of the contract for a fee known as a “balloon payment”.
The main difference between the two comes down to how they are calculated. As a result, PCP finance will have lower monthly payments than hire purchase, but the optional balloon payment at the end will be higher.
Car leasing (personal contract hire)
Car leasing, otherwise known as personal contract hire (PCH), is a simpler form of car finance. It’s a great option if you don’t have any intention to own the car outright at the end of the contract.
With PCH, you are simply paying for use of the electric car over a series of monthly payments. At the end of the contract, you return it to the finance provider with no option to buy the car.
Is a loan the best way to finance an electric car?
Ultimately, only you can decide what is right for your needs, as there is no definitive “best option”.
Here’s a quick summary of everything we have covered in this piece, to help inform your decision:
|Can you get a loan for an electric car?||Yes, it’s possible to pay for an electric car with a loan|
|What is an electric car loan?||An electric car loan is the same as any other form or loan, either secured or unsecured|
|Are government grants available?||Yes, but only in Scotland for a limited time and only for used EVs|
Looking for more ways to be eco-friendly? Check out our green finance hub, which runs through green loans, green mortgages and more.