Everything You Need to Know About Leasing an EV or PHEV

With a lease, you make a monthly payment to a leasing company to drive a new car for a set number of months—usually 18 to 36—and for a set number of miles. The payment is essentially the amount the car is expected to depreciate during the lease period. You’ll usually make a down payment as well. The monthly payments are often less than what you would pay to finance a new vehicle for a similar time period. At the end of the lease, you return the car to the leasing company. 

New legislation eliminates the EV tax credit for any leases made after Sept. 30, 2025. However, anyone who leases an eligible used electric vehicle (EV) or plug-in hybrid vehicle (PHEV) before then may still be able to claim a tax credit that can discount the cost of a lease. Some leased EVs may also be eligible for state and local savings or even rebates from electric companies.

In spite of all of the advantages of leasing, there are some reasons that buying or financing your next EV could be the better move.

It’s hard to walk away from a lease. Most important for EV owners, it’s difficult to terminate a lease if you decide that you don’t like the car, or if your lifestyle changes and an EV no longer meets your needs. You’ll probably get stuck with thousands of dollars in early termination fees and penalties if you get out of a lease early—and they’ll all be due at once. Those charges could equal the amount of the lease for its entire term.

You’ll have equity in a car you own. At the end of the lease, you have no equity in the car—nothing to show for the payments you’ve made. If you choose to lease another car, the payments start up again. If you don’t, you may have to pay a disposition fee that’s typically a few hundred dollars.

There are no mileage limits. If you go over your lease’s mileage limit—typically between 10,000 and 12,000 miles per year—you’ll have to pay an excess mileage penalty. That can range from 10 cents to as much as 50 cents for every additional mile. You don’t get a credit for unused miles.

You won’t incur extra fees and charges. If you don’t maintain a leased vehicle in good condition, you’ll have to pay excess wear-and-tear charges to repair the dings and scrapes or remove any aftermarket accessories when you turn it in.

To get an estimate of whether a lease makes financial sense, we recommend calculating the total cost of a lease, comparing it to the cost of a purchase, then subtracting how much the car will likely be worth when you sell it.

For example, consider a car that costs $399 per month to lease for 36 months with an initial payment of $3999. At the end of the lease, lessees will have spent a total of $18,363 to drive the car for three years. As is the case with all leases, once the lease term is over, lessees won’t own a car that they can continue to drive or trade in.

If you’d purchased that same car outright for $45,000 and it’s worth around $23,000 as a trade-in in three years, it would’ve cost you about $23,000 to drive it for the same period of time. In this case, the lease is the much better option.

But that’s not the case with all vehicles, so make sure you do the math on your own. In addition to cost savings, leasing might offer other advantages over purchasing an EV:

You won’t get stuck with old technology. EV technology is advancing so rapidly that battery range can increase and purchase prices may drop over a relatively short period of time, says Jake Fisher, senior director of CR’s Auto Test Center. “If you bought an EV a couple of years ago, it might not even be capable of the fastest kind of fast charging, whereas the newer vehicles have larger batteries, faster charging, and the prices keep coming down,” he says. In addition, a plethora of new EVs are about to hit the market, including new three-row electric SUVs from Kia and Volvo.

Repair costs are lower over time. Whether gas or electric, most all-new models get more reliable after their first year, and that’s no different for EVs. Many of the latest crop of EVs have shown below-average reliability in their first year or so of manufacture. But if you lease, your car will likely be under warranty for the entire time you’re driving it, so fixing any unexpected issues won’t cost you. In addition, most EV batteries are under warranty for at least eight years or 100,000 miles, so that important component will be covered as well.

You’ll enjoy peace of mind. It’s difficult to predict now how much an EV purchased today will be worth in two, three, or five years, Fisher says. “Prices and rebates have been fluctuating quite widely, making resale values impossible to predict,” he says. If the EV you’re leasing depreciates a lot over the next few years, it’s not your problem. But if you purchased an EV before a big price drop—which has happened to some Tesla and Ford buyers—your car just took a bigger depreciation hit than most used cars do.

Dealerships don’t necessarily have to honor advertised lease deals, says Gabe Shenhar, associate director of CR’s Auto Test Center. “Leases are negotiable because dealers compete among themselves,” he says. A salesperson may initially show you numbers that are much higher than advertised as a negotiating tactic. At the same time, some lease deals are limited to a specific option package or trim level. Adding just one extra option—a sunroof, bigger wheels, a different paint color—could dramatically change the terms of a lease and raise the price accordingly.

Just as with a purchase, take your time and ask about every line item on the paperwork. “Buyers can be too focused on the monthly payment and not realize they’re leaving money on the table if the dealer starts off with a markup or eliminates discounts the vehicle may be eligible for,” Shenhar says.

That depends. Almost all lease contracts have what’s called a buyout amount or payoff amount, a dollar value that you can pay the leasing company to purchase the car outright. You can negotiate this number, but only before a lease is signed. Leasing companies hope that it will accurately reflect what a car is worth at the end of a lease, but they could get it wrong.

If demand for used EVs is high at the end of your lease, resale values may be higher than expected and it may make sense to purchase the car for the buyout value that’s written into the lease contract. “If the automaker underestimates the resale value, you can buy the car and have equity, or sell it for a profit,” says Fisher. That’s what many lessees were able to do when used-car values soared early during the pandemic. But if similar cars are selling for less than the buyout amount written into your lease—or if the new crop of EVs are better than the leased one you’re turning in—it’s smart to walk away.

• CR’s Hybrid/EV Ratings & Buying Guide
• How to Buy a New Car in Today’s Challenging Market
• Electric Cars and Plug-In Hybrids That Qualify for Federal Tax Credits (For Now)
• 10 Best Deals on Electric Vehicles
• Best Deals on Fuel-Efficient Cars and SUVs
• Hot, New Electric Cars That Are Coming Soon