The Future of Electric Vehicles – EV Financing in India
India’s electric vehicle (EV) revolution is gaining momentum as the country tackles climate
change, technology readiness, and increasing government support.
As environmental concerns drive consumer decision-making, financing is coming to the
market with creative loan products, subscription models, and partnerships that help to
reduce barriers for individuals and companies. With exciting financing trends such as flexible
EMIs and loans for electric vehicles, there are many current finance trends that are helping
drive significant uptake of EVs and to move sustainable mobility onto the agenda of the
mainstream in the country.
Why EV Financing Matters More Than Ever
Electric vehicles (EVs) can be a significant saving for users over the life of the vehicle due to
savings in lower fuel consumption and less frequent maintenance, but the higher upfront
cost remains a major obstacle, particularly for consumers in India’s Tier 2 and Tier 3 cities.
Typically, the on-road price of an EV in India is around ₹12-15 lakh, while equivalent internal
combustion engine (ICE) vehicles start at ₹7-9 lakh. The difference in price gives focus on
affordability, especially in areas where household income is lower, and flexible financing
options are remote.
In smaller cities, consumers look most at affordability rather than savings or sustainability.
Traditional vehicle finance systems have evolved around ICE vehicles and are based on
standardized loan profiles and risk assessments that providers have created over decades
for ICE vehicles.
These traditional ICE vehicle products do not provide an adequate picture for EVs,
particularly because the purchase price of an EV is significantly more expensive than that of
an ICE vehicle, and because the battery can cost up to 40% of an EV.
The EV industry is now beginning to address this disparity. New EV financing products are
dedicated to meeting the needs of these markets, and there are new battery leasing models
and localized loan products being developed to make EV ownership possible in all parts of
the Indian economy.
The Financial Roadblocks to EV Adoption
With the emergence of electric mobility in India, there remain multiple financial barriers that
hinder widespread adoption of EVs—especially for individuals and small businesses.
1. High Upfront Costs
Electric vehicles typically have much higher upfront costs than ICE vehicles, driven primarily
by the battery, which can account for 30–40% of total vehicle cost. Therefore, even entry
level EVs are relatively expensive and unaffordable for many cost-conscious consumers.
2. Limited and Expensive Finance Options
In the past, traditional lenders have been reluctant to lend to EV buyers. Most lenders have
shorter tenures (typically 3–5 years) before repayment than ICE vehicles (5–7 years); and
charge higher interest rates than ICE vehicle loans to mitigate this risk—for example, ICE
vehicles may have 8-9% interest loans, while EV interest loans could be 10-12% or
depending on the lender and borrower identity.
3. Resale Value and Loan-to-Value (LTV) Issues
A lack of a developed secondary market for EVs creates uncertainty around resale value
and depreciation. This directly impacts the LTV ratio, when a lender determines how much to
lend based on the collateral value of the vehicle. Without a clear understanding of the
residual value of the EV, banks and NBFCs routinely limit LTV ratios to lower than ICE
vehicles, meaning that the buyer must put down a big down payment.
Innovative Financing Models Paving the Way
To solve many of the challenges with the EV transition, the finance industry is coming up
with new solutions to fit the unique aspects of EV ownership.
1. Battery-as-a-Service (BaaS)
Battery-as-a-Service is gaining popularity as a viable means of drastically reducing the
upfront expenditure of electric vehicles. In a BaaS setup, consumers buy the electric vehicle
without the battery (which usually represents 30–40% of the price of the vehicle), and lease
it instead. In a BaaS model, the price of an electric three-wheeler can go down from about
₹4 lakh to ₹2.5 lakh. After you complete the purchase, the consumer pays a fixed usage fee
of around ₹1.8 per kilometer to access the battery.
Companies like SUN Mobility are leading this charge in India for battery swapping and
battery leasing for electric two- and three-wheelers, reducing the costs and hassle for both
commercial and personal electric vehicles.
2. Full-Service Leasing
Leasing a vehicle is becoming an increasingly regarded model for urban consumers and
businesses alike. Full-service leasing includes vehicle costs with insurance, maintenance,
launch emergency roadside assistance, and bundling these costs into a fixed monthly price.
Consumers have the benefit of buying the vehicle without a hassle of ownership while
getting a monthly fixed cost along with less financial risk.
A research report by Mordor Intelligence, notes that India’s leasing market for electric
vehicles is to grow over 15% at a CAGR until 2028, with demand from fleet operators,
last-mile delivery, and wanted to take advantage of leasing services for young, urban
professionals wanting flexibility, without having to have ownership for long periods or
expense.
3. Full-Service Leasing
Through technology-enabled lending, fintech startups are bringing change to EV financing.
Fintechs can use alternatives to traditional credit scoring (like psychometric testing that
examines honesty, risk appetite, and reliability) to extend loans to people with little to no
formal credit history. The integrated technology approach is helping provide access to EVs to
the Tier 2 and Tier 3 markets that traditional banks don’t lend to.
Government Incentives Bolstering EV Financing
Under the belief that financing is key to accelerate the adoption of electric vehicles (EVs),
the Indian government has brought forth schemes to make EVs affordable and accessible:
FAME II Scheme
The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME II)
scheme was launched in 2019 (April) to stimulate the adoption of EVs. FAME II was
originally to run for three years but was extended on several occasions, and supported the
sale of more than 16 lakh electric vehicles (EVs) including two-, three-wheelers, and buses.
In 2024, the government approved a revised FAME Scheme with an outlay of ₹10,900 crore
to promote e-2Ws, e-3Ws, e-buses, e-trucks, ambulances, public charging infrastructure,
and improvements to testing, and will run through March 2026.
Income Tax Deduction under Section 80EEB
Section 80EEB of the Income Tax Act offers individual taxpayers (with interest bearing loans for electric vehicles) a deduction of ₹1.5 lakh on interest paid for loans to buy electric vehicles. This benefit was available for loans sanctioned from 1 April 2019 to 31 March 2023. Although new loans are currently not eligible under this benefit, people who took loans under this benefit can continue to compare a deduction on the interest paid during the loan period.
Reduced GST rates
To promote EV uptake, GST on electric vehicles has been reduced to 5% from the previous
tax of 28% on regular vehicles. Moving forward, however, as of 2025, GST on used electric
vehicles sold by registered dealers will increase from 12% to 18%.
Priority Sector Lending (PSL)
The Reserve Bank of India has identified renewable energy, with electric mobility being one
of the segments, as a priority sector lending. They have incentivized banks and non-banking
financial companies (NBFCs) to provide e-vehicle loans at preferential interest rates and
save on regulatory capital, allowing for easy and adequate credit access to all, including the
sector’s individuals and fleet operators, particularly in underserved segments.
Kogta Financial: Empowering EV Dreams
Kogta Financial is assisting the transition to electric mobility in India by creating tailored loan
products for new and used EVs, which include electric cars and two-wheelers. These lending
solutions cover all types of consumers, including consumers that may not have access to
traditional loans.
Here are how Kogta’s financing products help with EV take up:
- Loan Amounts starting at ₹1 Lakh: Enough to buy entry-level EVs and electric
scooters, especially in cost sensitive markets. - Financing up to 95% of the vehicle price: Reduces the significance of making a large
upfront payment and increases the opportunity for a larger consumer base. - Flexible Loan Tenures up to 60 Months: Allow manageable EMIs for consumers
including self-employed, and salaried. - No Income Proof: Eases access to credit for gig workers, delivery agents and small
business owners that may lack formal documentation. - Speedy Documentation Process: Streamlined documentation and faster approvals
with minimal paperwork.
These programs help fulfill the financing gap for electric vehicles for consumers, especially in
semi-urban or rural areas that may otherwise not be able to access financial products.
Read More: Commercial Vehicle Loan @ Attractive Rates
The Road Ahead: Financing the Change
1. Financing as the Backbone of EV Growth
As India’s electric vehicle ecosystem continues to grow, financing will be critical in
determining the course of its future. The move toward electric mobility is not only a shift in
technology or policy, but it is also a shift in financing. Institutions that are able to reimagine
lending through the lens of data-driven tools, new credit models and their product offering
will lead the change.
2. The Convergence of Policy, Fintech, and Consumer Demand
We are witnessing an important alignment of public policy, fintech innovation and consumer
interest. The confluence of these forces is creating the conditions for scaling up EV adoption
across demographics and geographies—particularly in markets where personal vehicle
ownership has been the province of a small elite.
3. Innovation Driving Accessibility and Inclusion
Creative innovations such as battery leasing, full-service EV subscriptions, and flexible loans
are not merely financing solutions; they are indicative of a more strategic shift toward
accessibility and equity in green mobility. By designing financing solutions that are inclusive,
adaptable and operate in accordance with real-world conditions, it may be possible to create
an EV transition that has benefits for everyone.
4. Building a Sustainable Financial Ecosystem
Supporting such inclusive financial infrastructure is not just a commercial opportunity; it is a
shared responsibility. With continued innovation and collaboration, financing has the
potential to evolve into one of the strongest enablers of a cleaner, sustainable transportation
future.
Conclusion
India’s EV future depends as much on smart financing as on technology. With flexible loans, battery leasing, fintech innovation, and strong government support, electric vehicles are becoming more affordable and accessible. As financing models continue to evolve, they will play a key role in accelerating sustainable mobility across the country.
