Electric Cars: Buy or Lease?

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Everyone’s getting buzzed about the Chevrolet Volt and its $41,000 price tag. That’s a lot of cash, even for Al Gore. So maybe the best way to do the right thing environmentally, while saving a few bucks in the process, is leasing the Volt instead of purchasing it.

The electric vehicle market is growing, albeit slowly. Deloitte Consulting estimates the market for electronic cars will be between 2% and 5% of the overall U.S. auto market by 2020. Deloitte cites the high costs of new vehicles and batteries as well as limited performance as key factors that could tamp down consumer enthusiasm for new vehicles like the Volt, Nissan’s (Stock Quote: NSANY)  Leaf (at $32,780) or the Toyota (Stock Quote: TM) Prius.

However, many U.S. consumers are still intrigued by electronic vehicles. Consumer Reports says 26% of respondents in a recent survey are considering an electronic car.

If you’re one of the 26% cited in the Consumer Reports study, is it better to finance it or lease it?

Let’s review a few factors:

Cost  - We mentioned the list prices for both the Chevy Volt and the Nissan Leaf clock in at $41,000 and $32,780, respectively. But both companies offer the vehicles for a $350 per month lease (Chevy with $2,500 down and Nissan with $2,000 down at signing). As with all traditional “lease vs. buy” debates, the most compelling reason to lease a car is the low up-front cost.

Performance – It’s hard to estimate just how well the new electric vehicles will perform, even though Chevy and Nissan offer long-term warranties (100,000 miles, 8-years) for their car’s battery. If you find the performance doesn’t live up to the hype, you can easily cut the cord at the end of a three-year lease.

Mileage – Ideally, your EV should act as your “second” car. Under the lease terms offered by both carmakers, the more you drive it, the more penalties you can incur. Both EVs come equipped with a 12,000 mile-per-year limit on the road. That’s pretty low for leasing standards, so if you have a long commute to work, you’ll easily surpass the mileage limits and would wind up paying more for the car.

Scalability - If you lease the first version of an EV, you’re in the perfect position to lease “Version 2.0” when it comes out, presumably with all the kinks worked out from the original. But if you buy the car, your options will be more limited.

Check with your local auto dealer to see what kind of tax credits are available on your new EV. Currently, buyers get up to $7,500 in tax credits from Uncle Sam just for buying a brand new EV. But state rules differ on tax credits when you buy or lease a car, so there could be a roadblock to getting additional tax credits. Both California and Alabama, for example, offer $5,000 tax rebates for buying EVs. And more states are expected to follow suit.

That said, if you pay a lot in taxes, getting a $7,500 tax break provides a greater incentive to buy the car.

As more new electronic vehicles roll off showroom floors, expect more interest from consumers. Early adopters are ones who’ll take the biggest risks, but they’ll also get the biggest tax breaks and deals—whether they lease or not.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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