Interest-free loans for (second-hand) electric vehicles
Why was this study into interest-free loans for electric vehicles conducted?
In recent years, Dutch policy for electric vehicles has largely moved from stimulating towards standard-setting. The general purchase subsidies for passenger cars and light commercial vehicles have ended, while zero-emission zones and higher fiscal burdens on fossil vehicles have been introduced. At the same time, purchase costs are a barrier for many private car owners and small businesses. Unlike the early adopters who benefited from subsidies, the households now making the switch mostly buy second-hand and have fewer financial means. For public support of standard-setting policy, and from a climate justice perspective, it is important that everyone can take part in the transition. Natuur & Milieu therefore asked Kalavasta, in collaboration with CPI (now a Grant Thornton company), to explore the added value and feasibility of an interest-free loan. The study compares the loan with subsidies and fiscal incentives, assesses its effect on the total cost of ownership for representative users, and identifies design choices and legal barriers. Recent fuel price increases linked to geopolitical developments have made the subject even more relevant.
What does an interest-free loan offer the user?
For the analysed profiles, second-hand electric cars of several years old in the B and C segments can already compete on total cost of ownership with comparable petrol cars, even without a loan. The loan mainly lowers the barrier of pre-financing the purchase by spreading the cost over time. Depending on the financing set-up, it can also lower monthly costs. A one-off purchase subsidy lowers the price but only partly solves this barrier. For small businesses, the loan offers prospects mainly for second-hand electric vans, provided supply picks up. For a new electric van, the cost disadvantage compared with a second-hand diesel remains. The loan also has drawbacks: the debt is registered with the credit bureau, which affects other borrowing such as a mortgage, and the application process is more complex than for a subsidy.
How many additional electric vehicles could it deliver, and at what public cost?
An interest-free loan could lead to several thousand additional electric vehicles per year, depending on its design. Most of these would be bought by private individuals, as the effect for small businesses may be limited in the short term while the second-hand market for electric vans is still immature. Public costs per additional vehicle are expected to be lower than for a purchase subsidy or a French-style social lease, provided the scheme is carefully designed. One reason is that the credit check and application process reduce the share of users who would have switched anyway. In addition, a social lease targets the lowest incomes and is relatively costly per beneficiary, while a loan can serve the group just above them. The instruments are therefore complementary rather than competing.
How could an interest-free loan work in practice?
Three implementation variants were explored. In a public variant, a fund such as the Warmtefonds, which already offers loans for energy-saving measures in homes, provides the loans directly. This offers the most control over target group and conditions, but requires implementation capacity, multi-year budget certainty and an adjustment to the risk profile of cars, which depreciate faster and have a less predictable residual value. A bank-based variant can be scaled up quickly through existing infrastructure, but standard acceptance criteria may reach lower-income households less well. A dealer-based variant is easily accessible at the moment of purchase, but makes targeting harder. The study recommends a phased approach, starting with a limited pilot through a Warmtefonds-like structure, followed by a legal review against state aid rules and further development of design parameters. These should be coordinated with other instruments, such as the trade-in subsidy for lower-income households that combines scrapping an old fossil car with support for a second-hand electric car.