Thinking about going electric but not sure how to pay for it? Choosing the right finance option can feel just as important as picking the car itself. Whether you want to own your EV outright or just enjoy the ride without long-term commitment, there’s a plan to suit every driver and every budget. In this article, we will explain all of your options, to help you understand which option is the best to finance your next EV.
What is leasing?
Car leasing is a way to rent a car long-term, and it is the and it is one of the most popular options for financing an electric car. The most common type of private car lease in the UK is Personal Contract Hire (PCH), you simply pay a fixed monthly amount to use the car for a set period and hand it back at the end. Many workplaces also offer salary sacrifice leasing, an employee benefit, which works like PCH but uses your pre-tax salary, meaning the payments come out before Income Tax and National Insurance, often making it significantly cheaper than arranging a lease privately, saving up to 40% compared to private leasing, depending on your tax band and employer scheme.
To lease a car, you choose a provider, pick a vehicle, and agree on the term, mileage, and initial payment. You then pay a fixed monthly amount and return the car at the end. The monthly cost mainly covers the car’s depreciation - insurance and servicing aren’t always included, and while some leases offer a maintenance package, others need you to arrange those yourself. Salary sacrifice schemes often include maintenance, but insurance depends on the employer. Leasing suits drivers who want a new car every few years with minimal hassle.
What is Personal Contract Purchase (PCP)?
Personal Contract Purchase (PCP) is a flexible way to finance a car. You pay a deposit upfront and then make monthly payments for 1–5 years. When the agreement ends, you can either buy the car by paying the final lump sum (the balloon payment), hand it back with nothing more to pay as long as it meets mileage and condition requirements, or use any positive equity as a deposit on your next car. With PCP, you only pay for the value the car loses during your contract, not the full price. The lender sets a Guaranteed Minimum Future Value (GMFV), which is the car’s estimated worth at the end, and your payments cover the difference between that figure and the initial price. It’s a good option if you want lower monthly payments and the flexibility to change cars regularly, but you’ll need to stay within the mileage limit and be prepared for the final balloon payment if you plan to keep the car.
What is Hire Purchase (HP)?
Hire Purchase is another common way to finance a car. Similar to PCP, instead of paying the full amount upfront, you pay a deposit (usually 10–20% of the car’s price), and make monthly payments over 1–6 years. When you finish all payments, you pay a small “option to purchase” fee. After that, the car is legally yours! As with PCP, the finance company owns the car until you’ve made all the payments.
The main differences are that HP has no large balloon payment at the end and you’re paying off the full price of the car, so monthly payments are higher but you automatically own the car once the term finishes.
The upside? There’s no mileage limit, so you can drive as much as you like, unlike the other financing options such as PCP. The trade-off, however, is that the monthly payments are higher than PCP because you’re paying off the car’s full value, not just part of it. In short, it’s a straightforward, no-surprises way to own your car outright in the end.
Are there government aids and/or grants?
Yes, there are several government incentives in the UK to support electric vehicle purchase and charging:
- Electric Car Grant (ECG) – available for new zero-emission cars with a list price up to £37,000. The grant offers up to £3,750 for the greenest cars (Band 1); a second tier offers up to £1,500 for other qualifying models (Band 2). You can find a list of qualifying vehicles on the Government website at gov.uk/plug-in-vehicle-grants/cars.
- Home and Workplace Charging Grants – There is support available for installing EV chargepoints, especially for renters/flat owners and workplaces. These grants typically cover up to 75% of the installation cost, capped at £350 per chargepoint socket for most home and workplace schemes, with higher overall limits for businesses, schools and landlords.
- Tax & Other Incentives – EVs benefit from lower Benefit-in-Kind tax rates (for company cars). If you drive a company-provided electric vehicle and you’re allowed to use it for personal trips, HMRC treats that as a Benefit-in-Kind – a perk that’s taxed. There are also exemptions and fee reductions in some low-emission zones. See our article on the London Congestion Charge here on the changing rules from late 2025/early 2026.
Example - How the numbers play out.
Let’s imagine you’re buying a Ford Puma Gen-E, a Band 1 car that qualifies for the full £3,750 Electric Car Grant (at the time of writing). Its on-the-road price before the grant is £34,000, so after the grant it costs £30,250. We will assume a salary-sacrifice lease cost of £500/month including maintenance and for a 40% taxpayer. Here’s how that could look under different finance methods:
| Option | Deposit / Upfront | Monthly | Final / Balloon Payment | Total Cost | Ownership | Mileage Limit |
|---|---|---|---|---|---|---|
| Buy Outright | £30,250 | £0 | £0 | £30,250 | Immediate | None |
| HP | £3,025 | £650 | £10 | ~£34,230 | After 4 yrs | None |
| PCP | £3,025 | £390 | £13,000 (optional) | £34,745 (own) / £21,745 (return) | Optional | Yes |
| Salary Sacrifice (40%) | £0 | £280 | £0 | £13,440 | Never | Yes |
| Leasing (PCH) | £1,200 | £400 | £0 | £20,400 – £22,000 | Never | Yes |
Financing a Used Electric Vehicle
Buying a used electric car can be a smart way to save money. As with all new cars, EVs depreciate quickly in their first few years, which means you can often find excellent deals on nearly-new models. Most of the same finance options (leasing, PCP, HP, and PCP) apply, but there are a few key differences when it comes to the interest rates.
Here is how the numbers play out via the different options for financing a 3-year-old Volkswagen ID.3, assuming a price of £22,000; a 10% deposit where relevant, a 4 year term for HP/PCP, a 5 year loan term, and a GMFV value of £9,000 for PCP. APRs reflect typical used-car finance rates (HP 8%, PCP 8%, loan 7%)
| Option | Deposit / Upfront | Monthly | Final / Balloon Payment | Total Cost | Ownership | Mileage Limit |
|---|---|---|---|---|---|---|
| Buy Outright | £22,000 | £0 | £0 | £22,000 | Immediate | None |
| Hire Purchase (HP) | £2,200 | £465 | £10 | £24,530 | After 4 yrs | None |
| Personal Contract Purchase (PCP) | £2,200 | £295 | £9,000 (optional) | £25,360 (if buy) / £16,360(if return) | Optional | Yes |
| Salary Sacrifice (40%) | £0 | £261 | £0 | £12,528 | Never | Yes |
| Used EV Lease (Re-Lease) | £1,000 | £370 | £0 | £18,760 (4-yr term) | Never | Yes |
Used EVs can be a fantastic value, especially with many 2–3-year-old models now coming off lease. Just keep in mind that battery health, warranty coverage, and charging history matter more for used EVs than for petrol cars - this is why, at ClearWatt, we’ve developed our proprietary test to provide verified battery health and vehicle insights, helping you make smarter, safer choices when switching to electric. All you need is the registration plate to get started - learn more at https://clearwatt.co.uk/ev-check.
Conclusion
Whether you’re simply leasing for convenience, keeping your options open with PCP, or paying monthly to own your car through Hire Purchase, there’s an EV finance route for every lifestyle. In addition, with the UK government offering generous grants, charging support, and tax breaks, switching to electric has never been more rewarding. No matter which path you choose, the move to electric driving isn’t just smart for your wallet, but a step toward a cleaner, more sustainable future on the road.