Buying A Car? Opt For Subscription Instead!
When it comes to owning a car, the first and sometimes the only option that comes to mind is that of purchasing it through a vehicle loan that offers the advantage of easy monthly instalments. But now there is an alternative – the subscription model in which case you use the car for a fixed fee every month. What works out better? Read ahead to know
When it comes to buying a car, all of us wish to possess one that can cater to our needs, be comfortable and not be too heavy on the wallet. Thus, most people prefer to buy a car through a vehicle loan. A majority of lenders provide 80 per cent of finance on the on-road price while some go up to 90 per cent on the ex-showroom price. There have been instances when even 100 per cent finance has been provided to buyers with sound financial credentials. The advantage is that such a loan can be paid off in easy monthly instalments. But there is another way of using a car as its owner – the subscription model – which is gaining traction these days. So how does it work?
A subscription model for a car works on similar lines to subscribing for a magazine or a direct-to-home (DTH) connection. When you subscribe to a car, you need to pay a fee every month or for a pre-decided period in order to use the car during the specified subscription period. Therefore, a subscription service allows an individual to drive home a vehicle of his choice for a monthly fee. This gives him full access to the vehicle without having to make any down payment. In fact, subscribers only need to pay an all-inclusive monthly fee that takes care of complete maintenance, insurance as well as roadside assistance. There is an option for the subscriber to opt out for maintenance. While Hyundai Motor Company started such a subscription scheme in March 2019, it was soon followed by Maruti Suzuki in September 2020.
In association with Revv, which is engaged in the car subscription business, Hyundai Motor Company offers the scheme across its entire model range but limited only to 20 cities. On the other hand, Maruti Suzuki provides such a service in collaboration with Orix Auto Infrastructure Services India, which is a subsidiary of Japan-based Orix Corporation. Currently, Maruti Suzuki offers its subscription model across eight cities. The table below offers a comparison between taking a Hyundai car on loan as against subscription. We have assumed a loan tenure and subscription period of 36 months and rate of interest at 7.5 per cent. Moreover, we have assumed that an individual can get 90 per cent of the ex-showroom price as a loan while he bears the cost of down payment.
The difference, you might opine, is not too much. As indicated, during the period of loan and subscription, the total outflow for loan works out to Rs 7.24 lakhs whereas for subscription it is Rs 6.7 lakhs. This creates a difference of Rs 53,700 which translates into a monthly variance of Rs 1,492. However, when you opt for subscription you also save the one-time cost of Rs 1.95 lakhs for down payment and Rs 1,500 as loan processing fee. Moreover, the subscriber also saves on insurance renewals worth Rs 1,150 per month. If the saved amount is invested in a debt fund for three years offering 6 per cent rate of returns, then at the end of 36 months your savings of Rs 2.91 lakhs will grow to Rs 3.38 lakhs. If you buy a car, there is an additional cost of Rs 72,000 by way of interest.
The Subscription Model
As a customer, you only need to subscribe to the service and pay a monthly fee. Of course you have to pay for the fuel yourself. All other expenses including maintenance and insurance would be taken care by the leasing company and the operators. The subscription plan offers tenure options of 24 months, 36 months and 48 months. Once the subscription tenure is completed, the subscriber has various options such as extending the tenure, opting for an upgrade of the vehicle or buying it at the market price. There are two kinds of number plates that are offered in the subscription model – white and black. In case of a white number plate, the car is registered in the subscriber’s name and is hypothecated to the leasing company while for a black number plate the car is registered in the name of the leasing company.
In the above table we can clearly see that if you choose to sell the car after three years, you stand to benefit when compared to subscribing. Here we have assumed that the insured declared value would be the market value of the car post 36 months. Interestingly, as a subscriber you have an option to buy a car at the market value post the subscription tenure. So, logically after 36 months you can buy the same car at almost 43 per cent lower than the original on-road price. Moreover, you have already saved the one-time cost and monthly savings that post 36 months would be worth Rs 3.38 lakhs. Technically, in case of subscription, your actual cost would be Rs 3.33 lakhs i.e. Rs 6.71 lakhs minus Rs 3.38 lakhs. Moreover, if you buy the same car at Rs 3.45 lakhs, your total cost of owning the car would be Rs 6.78 lakhs. In case you buy a car, your total ownership cost after 36 months would be Rs 9.19 lakhs.
There are two ways of using a car – either you can buy it or you can choose the subscription model. In order to understand the better option of the two, we carried out a study, arriving at the conclusion that subscribing a car financially makes more sense than owning it. However, there is one thing that is not available with the subscription model and that is the positive emotion of owning the car. Logically and financially though, the subscription model makes more sense. In fact, it makes even more sense for those who have a tendency to change the car every three to four years. It also works in favour of those who have a transferable job. Also, those having poor CIBIL score can drive the car of his choice via subscription model without having to worry about getting a loan and high interest rates. So, if you are not too high on the emotional quotient, choose the subscription model.