In this article:
Hybrid and electric vehicles are growing in popularity, albeit slowly. According to Experian's Q4 2020 State of the Automotive Finance Market Report, hybrid and electric models make up 6.7% of new vehicle financing, up from roughly 4.3% in 2019.
But more than two-thirds of people buying an electric vehicle are former gas or flex-powered vehicle owners. If you're considering a switch, it's important to understand whether an electric or hybrid vehicle can actually save you money and, if so, how much.
Does It Cost More to Purchase an Electric or Hybrid Model?
The cost of a new vehicle depends not only on the type of vehicle you buy but also on the model you choose. On average, here's how the monthly payments work out for each type of vehicle.
|Average Car Payment by Vehicle Type in 2020|
|Vehicle Type||Average Monthly Payment|
Source: Experian State of the Automotive Finance Market Report, Q4 2020
In other words, switching to a hybrid car likely won't change your monthly loan payment drastically. But if you're considering going straight to an electric vehicle, you'll want to make sure your budget has enough room for a higher payment.
That said, car payments can vary widely depending on the make and model. For example, Tesla vehicles tend to be on the expensive side, with average car payments for the Model 3 and Model Y pegged at $725 and $735 per month, respectively. In contrast, a Chevrolet Bolt EV costs just $410 per month, on average. We go over the most affordable hybrid and electric vehicles here.
It's also important to note the potential tax breaks you can get with all-electric and plug-in hybrid vehicles. The federal government offers a credit worth up to $7,500, depending on the capacity of the battery in the vehicle and other factors. Some states offer additional incentives that could further drive down the cost of your vehicle purchase.
These credits won't necessarily cut your monthly payment, but you could use them to make additional principal payments to pay down the loan early, saving you time and money.
What Are the Differences in Cost of Ownership?
As seasoned car owners know, the cost of owning a vehicle goes far beyond the monthly payment to your auto lender. You'll also need to consider fuel prices, electricity costs, repair and maintenance, insurance and more.
- Electricity vs. fuel: The University of Michigan Transportation Research Institute found that electric vehicles cost $485 per year to drive, compared with $1,117 for gas-powered vehicles. Just keep in mind that some areas may not have as many electric vehicle charging stations as others, so access should be a major consideration.
- Repairs and maintenance: Because electric and plug-in hybrid vehicles have fewer moving parts than completely fuel-powered cars, you can expect to spend about half as much on maintenance, according to a study by Consumer Reports—that's an average of $4,600 in savings over the life of the vehicle.
- Insurance: While an electric or hybrid vehicle can save you money in several ways, you can expect to pay more to insure one. According to a study by Self Financial, for instance, you'll pay $442 more per year to insure an electric vehicle compared with a gas-powered vehicle.
Keep in mind that where you live has an impact on how much it'll cost to own an electric or hybrid model. Gas prices, insurance criteria and other factors that vary by location can all affect how much you have to pay for your new car.
Access to electric vehicle charging stations is another important factor to keep in mind. If you live in an area with several locations, you won't have to worry about going out of your way to charge your car's battery or running out on the road. But in some areas, and depending on how much you drive, you may need to spend more time and effort keeping your battery going.
Accounting for all the ongoing costs of vehicle ownership is important: "You know, insurance, registration, gas prices or potential charging costs," says Melinda Zabritski, Experian's senior director of automotive financial solutions. "If it's an electric vehicle, do you have to have anything installed at your home for the charging?"
How to Decide Which Type of Car Is for You
Choosing between an electric or hybrid vehicle and a fuel-powered car may seem like an easy decision or a difficult one, depending on your situation and preferences. But there are several factors to keep in mind as you make your decision.
- Feelings on gas emissions: Many people switch to electric or hybrid vehicles because they care about the environment and want to reduce their contribution to the emissions that fuel-powered vehicles put out. Of course, going electric doesn't bring your emissions down to zero, as electricity can be produced from burning coal or gas, among other sources. But it can still make a huge difference, and if that's important to you, electric and hybrid vehicles offer a major advantage.
- How you use your vehicle: If you use your car primarily to commute, you'll need to consider the length of your commute, gas mileage on cars you're considering and gas prices in your area. If you go on a lot of road trips, you may find that electric vehicle charging stations are much less plentiful than gas stations. Also, if you spend a lot of time outdoors, including traversing dirt roads and rough terrain, the type of vehicle you need may not be available in electric or hybrid form.
- Upfront costs: While operating an electric or hybrid vehicle is typically cheaper over time, and you can receive tax credits for purchasing one, electric vehicles tend to be more expensive than gas-powered vehicles when comparing similar models. If you finance the vehicle, you can spread that extra cost over several years, but if you're making a down payment, it'll typically go further with a fuel-powered vehicle.
- Convenience: Electric charging stations are growing in number, and there are apps you can use to find ones close by wherever you are. But they're still not as plentiful as gas stations, so you may need to go out of your way to find them. What's more, it takes time to charge your vehicle. If you're on a long road trip, for instance, you may need to tack on several hours to your trip just to get to your destination. If you're using your car primarily to commute and can charge your car at home for most of your needs, however, this may not be an issue.
The Bottom Line
Electric and hybrid vehicles can save you money over time, but the financial aspect of owning a car isn't the only one to consider.
"I would really treat it as any other purchase, where you're looking at your total costs and the pros and cons before buying," Zabritski says.
Take your time to think about all the factors that go into owning a vehicle and how it might impact your decision to purchase a certain type of car. Once you've made your decision and are ready to purchase your new vehicle, make sure your credit is in the best shape possible before applying for a loan. You can get your free credit score and credit report to find out where you stand, and take action to improve your credit so you get the best rates and terms on your new auto loan.