Here is how much lenders charge for an EV loan

From the newsletter

Asset lenders have more expensive loans for electric vehicles compared to commercial banks – often double or more - but their lower requirements still make them attractive to borrowers. Analysis by Mobility Rising of two major electric vehicle economies, Kenya and South Africa, shows asset lenders charge as much as 52% annually for the purchase of EVs, while banks charge up to 20%.

• We analysed interest rates charged by six lenders in Kenya – three asset lenders and three banks – and a further three banks in South Africa. In Kenya, we picked asset lenders M-Kopa, Watu Credit and 4G Capital while the banks are NCBA, Family Bank and KCB. In South Africa, we selected WesBank, Absa and Nedbank, all which have EV financing options.

• In Kenya, M-Kopa charged up to 52% annually, while Watu Credit and 4G Capital charged 38% and 11%. Among the banks, Family Bank charged the highest interest of 22% annually, while NCBA and KCB charged 20% and 19% respectively. In South Africa, WesBank, Absa and Nedbank charge between 9% and 14%. 

More details

• In Kenya, asset financiers like M-Kopa, Watu Credit and 4G Capital have emerged as leading lenders to electric motorcycle buyers. Their model typically involves buyers making a deposit of between 20% and 30% of the purchase price and spreading the rest over a period of between 2-5 years.

• In South Africa, where the banking sector is more mature and the penetration of banking services is higher, individuals mainly finance their EV purchases through traditional vehicle financing offered by major banks like WesBank, Nedbank and Absa. This involves standard car loans and installment plans. 

• Asset financiers have a number of advantages over traditional lenders such as commercial banks. The main one is that while banks require you to be an existing customer and have strict requirements to qualify for a loan, asset lenders use the vehicle as the collateral. Further, asset financiers provide these loans faster, typically in a day or two compared to banks, which can take weeks or months.

• However, a major downside of asset financiers is that they charge very high interest rates and harsh penalties in case of missed payment dates. In countries like Kenya where these lenders are prevalent, they have been known to plunge some of their borrowers into debt traps. 

• Due to the informal nature of African economies, asset financing remains low. For instance, it is estimated that only 5% of vehicles in Africa are purchased through financing compared to 92% in Africa. This is changing, however, as Africa’s formal sector grows steadily. 

• Despite the glaring gaps in Africa’s EV financing market, the continent is home to some of the world’s fastest growing economies, with millions expected to be pulled out of poverty by this economic growth. This will enable more Africans to have more disposable income, a factor that will be pivotal in fast-tracking the growth of EVs on the continent.  

Our take

• Fintech solutions, particularly pay-as-you-go (PAYGo) models, will become increasingly prevalent in EV financing across Africa. These models, already successful in the electric buses sector, can be adapted for other EV types, making them more accessible to a wider range of consumers. 

• There is a need for diversification of EV financing options, with increased collaboration between asset financiers, banks, manufacturers, and technology companies. Through this, leasing programs, battery subscription services, and shared mobility models will become more common, offering flexible and affordable alternatives to traditional ownership.

• EVs are cheaper to maintain, while their value also depreciates at a slower rate compared to fuel vehicles. This reduced depreciation lowers the lender's risk of losing collateral value, which should inform lenders to reduce their interest on EV loans.