Should I Buy an Electric Car?

First Republic Bank
January 25, 2021

Electric cars have become more popular and accessible than ever before. These vehicles accounted for 2.6 percent of the total number of cars sold globally in 2019, and many manufacturers continue to roll out new electric vehicle models in 2021 and beyond. Experts suggest that the consumer trend toward purchasing more electric cars should continue as the number of charging stations increases across the United States.

If you’ve found yourself wondering, “should I buy an electric car?” the answer very well might be yes. This year may be the tipping point for those who want to buy an electric car: prices are decreasing for many base models, battery life is improving with hardware and software improvements, and charging stations are becoming easier to find.

Before you decide to buy an electric car, you should familiarize yourself with your financing options. There are several ways to finance the purchase of an electric vehicle, and some may be a better fit for your personal finances than others.

How much are electric cars?

Electric cars can be more of an upfront investment than gas-powered vehicles, but the price range on electric models has increased in recent years. Most electric cars cost anywhere from $30,000 to $185,000. Cars on the less expensive end of the spectrum still cost $19,000 more than conventional vehicles, on average. This range is due somewhat to the majority of electric vehicles being luxury models, though that may change as the market expands.

The sticker price on electric cars only accounts for one part of their overall cost calculations, however. It’s important to factor in refueling savings over the life of the car’s use as well. On average, electric cars cost $400 to $500 a year to charge, depending on use, electricity rates and vehicle efficiency. According to one recent study, electric vehicles can actually save drivers anywhere from $3,000 to $10,500 in fuel costs over a 15-year span.

How can I finance an electric car?

Financing an electric car might be an attractive option for many would-be drivers, given their higher sticker price. The good news is that there are several options for financing your purchase, ranging from personal savings to loan products.

  • Savings: Cash is a common way to pay for your electric car purchase. Whether you can pay in full or in part with cash, the total you bring to the table means the less you need to finance. This may be a challenge for many people, however: the expense of an electric vehicle means you might not be able to cover the full cost of the vehicle through savings. Or, if you do intend to pay with cash, you may have to wait longer to save up for your purchase.
  • Auto Loan: If using cash on hand isn’t a feasible option, an auto loan is another common way to pay for an electric vehicle. Auto loans are secured loans that help borrowers pay for a new or used car. According to consumer credit statistics released by the Federal Reserve, the national average for U.S. auto loans is 5.14% on 60-month loans on new cars, as of May 2020. However, rates on auto loans vary based on factors like loan terms, the age of your car, credit score and additional lender risk factors like driving history and age. Auto loans are provided by dealerships and a variety of lenders, so it’s worthwhile to shop around for the best interest rates and terms.
  • Personal Loan: A personal loan gives you access to a large sum of money at once, which you would then provide to the dealership. Personal loans vary in terms of total amount, payment terms and interest rates. These will depend in large part on your credit score and history, as well as whether you already have a trusted financial relationship with your lender.
  • Personal Line of Credit: With a personal line of credit, you can tap into a flexible funding source for a set amount of time, usually over a number of years. Unlike with a personal loan, you'll only pay interest on the money you've taken out, which removes the guesswork of determining how much funding you need at the point of purchase. A personal line of credit can also be helpful for those who also want to finance other elements of their new car purchase, such as a home charging station, because you can use the funds for a wide range of personal or household purposes. You can also tap into a personal line of credit for other purchases so long as you do not withdraw more than the loan’s total all at once. If the amount borrowed is paid back within the draw period, that amount is available for the borrower to draw again — without the requirement to reapply for another loan.  
  • Credit Card: You may be able to finance a portion of your electric car purchase with a credit card. A credit card functions similarly to a personal line of credit: you’re given a credit limit from which you can pull repeatedly so long as you pay your balance (and interest) on schedule. The average U.S. cardholder has a credit limit of $22,751, which might mean that you can only finance a portion of your electric car purchase with a credit card. There are other factors that may make credit card financing less appealing, such as higher interest rates than personal loans or lines of credit, that can end up costing you more in the long run.

Is it better to finance an electric vehicle through a dealership or a bank?

Both banks and car dealerships offer financing options for buyers. There are advantages and disadvantages to be had with both, particularly with regard to terms and fees.

Financing with a dealer

Many dealerships offer the opportunity for customers to finance their electric vehicle purchase in-house. Dealers work with prospective lenders on your behalf, including financing arms of automotive companies. Some dealerships may offer promotional terms, including low introductory interest rates or a certain period of time before a borrower needs to begin repaying their loan.

There are downsides to dealer financing, however: low introductory rates may give way to interest rates that are higher than bank financing, and dealer financing agreements may have additional fees.

Financing with a bank

Bank financing is often a better option for most people looking to buy an electric vehicle. You’re more likely to get favorable terms on a loan when financing with a bank, especially if you borrow from a financial institution where you already do business in a personal or business capacity. These benefits may include flexible payment terms, lesser (or no) collateral requirements, or the flexibility that comes with a personal line of credit.

If you do not already have an existing relationship with a bank, reaching out for automotive financing is a great reason to start building one. When you establish your relationship, you’ll prime yourself for more opportunities to work together in the future. This can include refinancing student loans, upgrading to your dream home or working with a personal finance expert to make sure you’re on track to reach your financial goals.

What type of loan is better for an electric vehicle: secured or unsecured?

When paying for an electric vehicle, neither type of loan — secured or unsecured — is inherently “better” than the other. The answer to this question will depend on your individual financial circumstances, including your credit score. Most auto loans are secured, with the vehicle itself serving as collateral. For most borrowers this is fine, so long as they stay up-to-date with their payments. Should a borrower default on the loan, however, they’ll lose their car as a result.

With an unsecured loan such as a credit card or personal line of credit, collateral is not required. Your car won’t serve as a security on your loan, and you won’t have to offer up cash as collateral, either. Borrowers need to have excellent credit to qualify for an unsecured line of credit — a FICO score of 720 is or higher is usually necessary. If you have excellent credit, an unsecured line of credit can work to your advantage, particularly if you don't want to have cash tied up in collateral.

Can I get a tax credit for buying an electric car?

The federal government incentivizes electric car purchases with an income tax credit of up to $7,500, depending on the car’s battery capacity. Bear in mind that this credit goes to the manufacturer if you lease the car rather than buy it.

The U.S. Department of Energy offers a tax credit calculator as well as a list of popular electric vehicles and their current tax credit amounts. Your state might also offer tax incentives for purchasing an electric vehicle. You can see what your state offers by way of a U.S. Department of Energy database.

What are the different types of electric vehicle (EV) car chargers?

There are three different types of electric vehicle chargers: Level 1, Level 2, and DC Fast Charge. Depending on the charger, it may take between 30 minutes to 2 hours to charge a car.

  • Level 1 chargers are designed to work out of your home or garage, as they allow you to plug your car’s charging cable directly into a standard 120 volt outlet. These chargers can take anywhere from 17 to 25 hours to fully charge a 100-mile battery. Most Level 1 chargers cost between $200 to $1,000 to buy, on top of standard electric fees.
  • Level 2 chargers are usually standalone units that you can find in commercial garages, rest stops, or municipal parking lots. These chargers take advantage of higher voltages, meaning they can fully charge a 100-mile battery in as little as four hours.
  • DC fast chargers can recharge a car battery to 80 percent capacity in as little as 30 minutes due to the way in which they deliver current. These chargers can usually be found alongside Level 2 chargers but may cost more to use and can put strain on your battery if used frequently.


Charger Type

Plug needed

Additional charging equipment needed?

How many miles per hour of charging?

Locations commonly used at

Level 1

120 V AC plug

No

2 to 5 miles of range per hour of charging

Homes, but sometimes used at workplaces

 

Level 2

240 V (for residential) or 208 V (for commercial) plug

Yes

10 to 20 miles of range per hour of charging

Homes, workplaces, and for public charging

DC Fast Charge

480 V AC input

Yes (highly specialized, high-powered equipment as well as special equipment in the vehicle itself)

60 to 80 miles of range in 20 minutes of charging

Public charging stations, especially along heavy traffic corridors

Should I buy an electric car or a plug-in hybrid?

An electric car may optimize your fuel costs and eliminate emissions entirely from your driving, but a hybrid electric vehicle may also offer several advantages. People who have long commutes, or who envision driving long distances often, may not benefit from an electric vehicle that doesn’t also run on gas. That’s because the driving range for fully electric vehicles is still shorter than gas-powered cars, even with current technological advancements in mind. Fast-charging can be costly over time and may harm your long-term battery life, making it a poor option for getting extra mileage out of your vehicle on a frequent basis.

Hybrid vehicles, on the other hand, can give you more flexibility by switching between battery and gas power. If your battery runs out on a hybrid, the gas power system kicks on. Or, alternatively, both systems may work together and switch on and off depending on your driving and traffic conditions. You will likely get a smaller tax rebate for a hybrid, however, since the amount provided is based on battery size and capacity.

Finance an electric car with a Personal Line of Credit

Although the upfront costs of an electric car may exceed those of a conventional vehicle, the benefits of going electric are multifold: you’ll pay less to power your car in the long-term, benefit from tax incentives for buying, and help make the planet greener in the process.

Whether a fully electric car or a hybrid makes more sense for you, be sure you know what you’re willing to spend and what your needs are.

Don’t forget that there are options to help make it easier to buy the electric car of your dreams as well. A personal line of credit is especially well-suited to help you finance an electric car as it provides you with the flexibility to purchase your car and the charging equipment you need to keep moving. Plus, you’ll benefit from improved cash flow by having more of your own money at hand. You can calculate your rate and learn more about how a personal credit could work for you.

 

First Republic’s Personal Line of Credit – access funds with fixed rates from 2.25% APR (with discounts).

Personal Line of Credit consists of a two-year, interest-only, revolving draw period followed by a fully amortizing repayment period of the remainder of the term. Draws are not permitted during the repayment period. Full terms of 7, 10 and 15 years available.

This product can only be used for personal, family or household purposes. It cannot be used for the following (among other prohibitions): to refinance or pay any First Republic loans or lines of credit, to purchase securities or investment products (including margin stock), for speculative purposes, for business or commercial uses, or for the direct payment of post-secondary educational expenses. This product cannot be used to pay off credit card debt at origination.

The terms of this product may differ from terms of your current loan(s) that are being paid off, including but not limited to student loans. By repaying such loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness, and you may not be able to reobtain such benefits if this loan is refinanced with another lender in the future.

Borrower must open a First Republic ATM Rebate Checking account (“Account”). Terms and conditions apply to the Account.

Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you. Terms and conditions apply.

Product is not available in all markets. For a complete list of locations, visit firstrepublic.com/locations. Applicants must meet a First Republic banker to open account. This is not a commitment to lend; all lending is subject to First Republic’s underwriting standards. Applicants should discuss line of credit terms, conditions and account details with their banker.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document.

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