Traditionally, there’s been no “casual dating” in the car ownership world. You either lease, which is like a committed relationship, or you buy, which is like a marriage.
However, things have changed. Similar to Netflix and Hulu, you can now subscribe to a car. Manufacturers and third parties have created plans enabling you to have access to a car for a term longer than a traditional rental without the commitment of a lease.
So now with a third option in the mix, which is right for you: subscribing, leasing, or outright buying?
What is a car subscription service?
Perhaps noticing the growing popularity of subscriptions in other industries, or seeing a sly way to circumvent dealers, many car manufacturers have begun offering subscription service. You can subscribe to a single car or even a rotation of options.
These services include (but are not limited to):
- Access by BMW
- Lexus Complete Lease
- Mercedes-Benz Collection
- Care by Volvo
- Carpe by Land Rover
- Porsche Passport
Each lets you rotate new or nearly-new luxury cars with insurance and maintenance included.
Care by Volvo is the cheapest, at “only” $700 per month for access to just a XC40. Mercedes-Benz Collection is around $1,600 per month, while Porsche Passport is… are you ready? $2,000-$3,000 per month.
Thankfully, third parties have emerged with more sensible, Millennial-friendly options. Each typically includes insurance and maintenance.
Fair is one of the most popular car subscription services. It asks you to make a “start payment” for each car, typically two-three times the monthly rate, then offers low monthly rates on top of that.
Switching cars requires a new start payment, incentivizing you to subscribe to one car for the long term (if every first date cost you $1,000, you’d probably stick around with one person a bit longer, too).
Flexdrive lets you subscribe to cars on a week-to-week basis. It’s more expensive than Fair, at $400/month minimum, but the flexibility of having a Camaro this week to a Tundra pickup next week may be worth it to you.
Canvas lets you subscribe to 2014-2017 model year Fords and Lincolns starting under $500 per month. For now, however, it’s only available in California.
Less operates more like a traditional three-year lease, but lets you change cars every year. It’s currently only available in the Bay Area and only offers luxury cars for comparably high rates. You’ll pay $550 per month to use Less.
Borrow offers exclusively electric cars, like the BMW i3, VW eGolf, Nissan Leaf, and soon, the covetous Tesla Model S. Rates for a Leaf start around $400 per month.
Finally, newcomer Carma promises to offer prices “20-25% more than car ownership, but 30 times more flexible,” according to the CEO. While details on their site are scant, they may emerge as a serious contender.
How subscriptions save you money
Per the Carma CEO’s words above, car subscriptions aren’t really about saving money; they’re about convenience and flexibility. That being said, they still offer the cost advantage of not requiring a down payment.
To lease a new Nissan leaf for 36 months will cost around $350 per month, but also $2,000 due at signing, and doesn’t include insurance. By comparison, to get the keys to a Leaf through Borrow costs just $400 per month with no down payment aside from a small deposit.
You should subscribe to a car if…
Maybe you just brought a sports car up north and need a winter beater until you can retreat back south again. Or maybe you’ve got a home improvement project and could seriously use a pickup truck this summer. Or maybe, you’re just unsure how long you’ll need a car for.
Each of these is a reason you may need a car for a few months, but not a few years. Any longer than that and a lease may start to make sense, but even then, only if you can afford a hefty down payment to bring down the monthly rate.
You should avoid subscribing to a car if…
You want to own a car
If you think you might own, but want to try owning a variety of cars first. Subscription services will enable this, but at the cost of thousands of dollars. You’re much better off just spending a few Saturdays test driving cars at Carmax, or even “buying” and returning them within the seven-day return window.
You need a short-term rental
Also, if you only need a car for a week or so, renting through Turo may be a much better option. It is still more convenient than subscribing, and Turo offers a more interesting selection of basic, sporty, utility, and exotic cars.
You can use public transportation
Lastly, even if you’re stranded in a new city without wheels, it’s always best to test public transportation options before swallowing the high costs of car ownership, subscription or otherwise.
For example, in DC, to commute via rail and take the occasional Uber will cost around $250 per month. Meanwhile, if you have a car, the average cost just to park in DC is $270 per month.
What is car leasing?
Leasing a car generally last 36 to 72 months. Then, it comes time to decide; will you commit, try something else, or go without a car at all for a while?
Financially speaking, car leasing typically involves a down payment of a couple grand plus a monthly rate for a duration agreed upon upfront. Leases come from dealers who have a vested interest to maintain the car’s value while you have it so they can sell it for maximum profit afterwards.
As a result, many factors dictate a monthly lease rate: the car’s current value, its predicted depreciation, anticipated mileage and wear, and so on. Because they depreciate so quickly, exotic and performance cars tend to have enormous lease rates in the thousands. However, sensible sedans, hatches, and crossovers tend to have generous and attractive monthly rates to attract young buyers and create brand loyalty.
How leasing saves you money
The first key to finding a good lease deal is to ignore low lease rates you see on TV and in banner ads online. Manufacturers love to advertise low lease rates, but look in the slightly-finer print and you’ll see exorbitant down payments.
For example, it’s little-known secret that Mercedes designed the inexpensive CLA-Class to attract young buyers with lease rates in the low $300s. Wow, a new Mercedes for less than $4,000 per year! Not so fast, because that low rate is only available if you pay $4,000, or basically an entire year, up front.
Maybe you can afford that, but what if your shiny CLA is totaled or stolen within the first few months? Your insurance would reimburse the leasing company, but you’d never see your $4,000 down payment again.
In general, leasing will save you money if you want a new car, and only for a few years.
You should lease a car if…
You like low monthly payments
If you also like the idea of owning a new car every few years without the hassle of maintaining and selling your old one. Car leasing is the most convenient and inexpensive way to own a new car for a period of three to five years.
You like historically unreliable cars
It’s typically better to lease historically unreliable cars. If you love the following:
- Alfa Romeos
- Range Rovers
…you may want to lease these cars new while they’re still under manufacturer’s warranty.
You shouldn’t lease a car if…
You use your car to cart around kids, dogs, or work equipment
Dealers tend to forgive small scratches that can be covered by a credit card (called the “credit card test”), but you’re on the hook for anything more than that. If you have kids, dogs, or a lot of stuff to haul, dings are extremely likely, and you won’t want to pay a dealer to repair them after three years.
You don’t have a good driving record
You also shouldn’t lease a car if you don’t have the best driving record. Remember that if you total or severely damage a leased car, the insurance company will reimburse the dealer, not you. You’ll be out a down payment and X number of monthly payments with no insurance check for new transportation.
You don’t mind owning a used car
Finally, you shouldn’t lease a car if you’re OK owning a preowned car. After all, it’s often cheaper to finance and then own an older model year car than to lease its new equivalent.
What is car buying?
Car buying is as old as cars themselves. By 1925, you could two-step into a Ford dealer and drive out in a new Model T for just $300 (or $4,200 in 2018 dollars).
Today, you have many more options for buying and truly owning a car. You can haggle with a dealer, buy from Carmax or Carvana, or brave the Wild West of Craigslist.
Some think car buying is silly. Why pay tens of thousands of dollars for a depreciating asset that sits in your driveway? For others, however, it’s the only option. As stated above, car ownership can actually be cheaper than leasing.
Owning a car means you can slap bumper stickers on it, ding and scratch it off-roading, install parts for better performance, and otherwise make it your own. Plus, when it’s time to switch or buy something family-friendly, you can pass on your four-wheeled friend to a new home, pocketing a chunk of cash in the process.
How car buying saves you money
If you’re looking to drive a new or newish car for three years, leasing is almost certainly cheaper than buying. However, on average, Americans keep their cars for 79 months, and if you look at pricing figures for six years of ownership, things don’t look so black-and-white.
According to Edmunds, if you’re looking at a ~$27k SUV, it’ll cost you around $34k to buy new including interest versus $28k to lease for six years. However, if you were to buy one that’s about three years old, it would only cost you $27k including interest.
The study doesn’t include two major factors: maintenance and residual value of the car. Sure, it may be cheaper or similar to lease a newly-redesigned Toyota RAV4 for six years instead of buying lightly used one, but at the end of 72 months, you have the option to buy the car outright, as opposed to, well, already owning at by that point.
You should buy a car if…
You plan on owning a car for more than five years. Furthermore, if you plan to customize or put a lot of wear and tear on your car, buying is a must.
Furthermore, you should buy a car if financial freedom and low overhead are attractive to you. As long as you lease or subscribe, you’ll always owe someone several hundred dollars a month for access to a car that isn’t even yours. Taking out an auto loan may sound similarly unappealing, but at the end of it, the car is yours.
You shouldn’t buy a car if…
You have a low credit score
Your credit score affects your subscription and lease rates, too, but it makes the most difference when you buy. Having a score above 680 may save you hundreds on a lease, but thousands on an auto loan.
You can’t find one you love
You also shouldn’t buy a car if you haven’t fallen in love with one yet. Buying is the marriage of the car world; you’re in it for the long haul, so do your due diligence beforehand.
Unlike the low stakes of renting or even leasing, buying a car requires hours of research and test drives to find the car you’ll be happy with for years to come.
You have a major life event coming up
Lastly, you should hold off buying a car if you predict any major life changes coming down the pipeline in the next three years. If you’re starting a family soon, you may want to lease something cheap until you get a minivan. If your employer might ship you across the country next year, you should probably just subscribe until you know for certain.
All in all, it’s hard to definitively say you should subscribe, lease, or buy a car based upon cost alone. Virtually all three forms cost around $500 a month for a decent set of wheels, so the tie-breakers lie in your personal preferences and lifestyle.
Here’s a handy chart to help you decide which option to explore first, but don’t forget; though it’s hard for our car-loving souls to admit, the cheapest solution is not owning a car at all.