Should I buy a car or opt for a monthly subscription?
Car manufacturer are coming up with innovative ways to own a car on a monthly subscription and promoting the benefits of it to the potential owners big time but is it a wise choice for you to opt for a subscription based car rather than owning it? Let’s look at the financial aspects for fair comparison.
The below example is of Hyundai i20 Magna+ which costs 7,50,000 on-road in Mumbai. To keep the comparison fair and simple we have opted for maximum financing through loan for 4 years @9% interest rate while quoting the example for buying a car and renting it for 4 years and paying a settlement amount to buy it later at the end of the term which is an option.
| Particular | Rent | Buy |
|---|---|---|
| Down payment | 0 | 32,500 |
| Rent / EMI | 17,660 | 18,199 |
| Settlement amount | 1,64,800 | 0 |
| Total cost towards ownership | 10,12,480 | 9,06,052 |
| Insurance cost | – | 60,000 |
| Maintenance cost | – | 40,000 |
| Total outflow | 10,12,480 | 10,06,052 |
Source: www.revv.co.in
As you can see, there is hardly any difference to go for any conclusive decision based on these numbers as total outflow is more or less same in both the category. However, we have not considered the time value factor here and considered the outflow on absolute basis. If you buy the car, the extra cost associated with it are paid yearly or regularly but the settlement amount while renting is paid at the end of term hence renting looks relatively cheaper in that sense.
Since the company has the liability to take the car back at the end of the term, it is safe to assume that any maintenance activity required periodically will be duly taken care and the car is covered with comprehensive insurance cover and in case of any eventuality the owner is liable only to the extent of Rs. 10,000 and having all the privileges of owning a car like emergency road side assistance. However, there are extra charges if you drive more than 25k km per year and during the end of tenure there can be some extra charges if the car is in subpar condition and you opt to giveaway. Hence it is recommended to confirm these details in advance and go through the terms & condition before signing up.
The rent is not an EMI and hence it will not block your home loan or other loan eligibility limits.
Hence, we believe that renting is relatively bit cheaper and offers better flexibility than owning a car in a traditional way.