What is a car subscription service? | RateCity
In a subscription economy, it isn’t surprising to see an increasing demand for pay-as-you-drive cars. Just like you pay a fixed amount regularly to listen to your choice of music on Spotify or similar streaming services, a car subscription service lets you pay a regular fee to use a car of your choice.
Research by Carly, a car subscription service, revealed in 2021 that 38 per cent of Australians would consider subscribing to a car rather than purchasing one. Among the survey participants, younger people aged 18-24 were more likely to question traditional ownership models, with 69 per cent preferring a subscription service over buying a car.
How does a car subscription service work?
While every car subscription service will have slightly different terms and conditions, the basic concept remains the same. With most companies, you are required to sign up online, choose your vehicle and make a fixed weekly, fortnightly, or monthly payment to use it. Once this is done, you may be required to pay an upfront fee before picking up your vehicle or having it dropped off at your place (if the subscription company offers delivery).
In addition to the vehicle rental, car subscription fees usually cover the cost of registration, insurance, maintenance, and assistance during the subscription period. All you need to do is book your car with a subscription company and pay the upfront fee to start using the car immediately. There are usually no additional costs to worry about, except your weekly or monthly subscription fee and the fuel you need.
Unlike a lease, you are not bound to use a subscribed car for a fixed number of years. A subscription service allows you to return the car whenever you like. However, you may be required to provide a few weeks notice to the subscription company before returning the car to them.
Some subscription services also allow you to swap the car for a different model when you need it. If you do decide to switch models, your car subscription may increase or decrease depending on the vehicle you choose to drive.
What should I consider while looking for a competitive car subscription?
As always, shopping around for deals from different service providers is likely to help you find a competitive rate. You could head to an online comparison site or individually visit service provider websites to find out how much it’s going to cost you to subscribe to a car.
While researching your options, in addition to comparing rates, spend some time reading the terms and conditions to understand the limitations of each deal. For instance, some companies limit the number of kilometres you can drive in a month. You are required to pay an additional amount for the kilometres you clock above this number.
The price you pay for a car subscription also depends on the model you choose and whether it is a new or an old vehicle. A luxury car will naturally cost you more than a compact family vehicle. Some subscription services also allow you to swap cars regularly for an additional charge. If you enjoy driving different vehicles or may have different requirements from your car at different times, this might be an option worth checking.
Is a car subscription service worth it, or am I better off owning a car?
Owning a car is expensive. Many people apply for a car loan to finance their vehicle and continue making repayments for several years. In the meantime, the vehicle loses its value through depreciation. By the time your car loan ends, your car may be worth much less than what you paid for it.
Besides the cost of purchasing a car, you also pay stamp duty to register it. Other car ownership expenses include keeping your insurance updated and getting your car serviced regularly to ensure it runs smoothly.
A car subscription service allows you to bundle the running costs of a car into a regular fee, helping you eliminate the cost of owning a depreciating asset. However, whether you really save money by subscribing to a car instead of owning one is debatable.
Car subscription services work for a profit. Therefore, it’s only natural they pass on their maintenance and depreciation costs to their customers. So, even though a monthly fee for the service may look affordable, there’s often a joining fee, security deposit, late payment penalties, and cancellation charges rolled into the deal.
Overall, the amount you pay for using a car that you subscribe to could exceed the costs of traditional car financing. Therefore, it’s worth calculating how much you’ll pay annually for a car subscription and compare it with the ongoing costs of owning a car outright to make an informed decision.
For example, imagine you wanted to drive a 2018 Kia Cerato, which according to Cars Guide, has a price guide of $20,998 at the time of writing.
Using a car subscription service such as Carbar, you’d pay $181 per week for the first year, before you’d start receiving loyalty credits. This would reduce your weekly subscription fee to $170 per week for the second year, then $159 per week for the third. You’d also have to pay an upfront fee of $1040. At the end of a three-year period, you’d have paid a total of $27,560 for the car. Also, if you drive more than 26,000 kilometres in a year, you’ll also be charged an extra $0.40 per kilometre.
Compare this to a car loan, where borrowing $20,998 over 3 years at an interest rate of 5.3 per cent (the average rate at the time of writing) would result in a weekly payment of $146, costing you $22,735 in total, plus any upfront and ongoing car loan fees and charges. While this is less than the car subscription fees, you’d still need to cover the cost of your own stamp duty, insurance and servicing, which may vary. And of course, unlike with a car subscription, you’ll be the legal owner of the vehicle.
1st year payments $/week | 2nd year payments $/week | 3rd year payments $/week | Total cost | Notes | |
Car subscription | $181 | $170 | $159 | $27,560 (includes upfront fee of $1040) | · Includes stamp duty, insurance and servicing · Extra $0.40/km driven over 26,000 km per year · Do not own the car |
Car loan | $146 | $146 | $146 | $22,735 | · Does not include stamp duty, insurance or servicing · Does not include extra upfront or ongoing fees · Own the car |
It is also possible that you can’t find a car subscription service in your area. For instance, you will find the popular Carly car subscription service only in Sydney, Melbourne, Brisbane and the Gold Coast. Carbar, another well-known option for car subscriptions, only provides services in Sydney, Melbourne and Brisbane. If you are in Queensland, you may be able to get a car subscription from FlexiGo in some areas. But if you happen to be in a state or territory where car subscription services are not available, your options may be limited to purchasing or leasing a car.
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