Are lower cost electric car loans on the way? Plans afoot to cut finance costs for EV buyers

Government-backed EV loans could be on the cards as the UK scrambles to boost private uptake of electric cars, in the face of evident consumer reluctance to embrace the new technology.

Reports suggest that ministers are in talks with car finance firms, with a view to subsidising the cost of finance by guaranteeing loans to drivers. The hope is that by acting as guarantor, lower interest rates or even zero interest rate loans can be offered to tempt prospective buyers into the EV market.

News of the talks suggests a link to the unexpected intervention last week by the Treasury, under Chancellor Rachel Reeves, into the ‘undisclosed commission’ saga, where finance firms face billions of pounds’ worth of compensation payouts to consumers thanks to a Supreme Court ruling that’s currently subject to an appeal. 

The Treasury intervention ahead of the appeal hearing came in the form of a letter to the Supreme Court alleging that any compensation payouts due to car buyers would have the “potential to cause considerable economic harm and could impact the availability and cost of motor finance for consumers”.

The UK Government formerly subsidised new EV purchases via its plug-in car grant, which slashed thousands of pounds from the cost of new models. However this incentive scheme ended in 2022, with the previous Government suggesting that the market had matured sufficiently to be self-sustaining. 

Pulling the plug on the plug-in grant scheme left the UK out of step with most of Europe, where sales incentives have been maintained, and the Government has been under significant pressure from car manufacturers to act. They want to see a relaxation of electric car sales quotas under the Zero-Emissions Vehicle Mandate, which sets out the path to a full transition to an EV-only new car fleet by 2035, and currently bars ICE-only new sales (excluding hybrids) from 2030. 

They have also been lobbying for a new package of taxpayer-funded incentives to reduce the cost of new electric cars, as well as a reduction in the VAT payable on electricity by anyone forced to use public chargers, bringing it into line with the lower rate charged on domestic electricity used by EV drivers charging at home. 

In spite of the challenging market conditions, the UK remains one of the leading countries when it comes to EV adoption, mostly due to attractive tax benefits for company car drivers.

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