What You Need to Know about Buying Vs. Subscribing to a Car
If you’re going to be choosing between buying a car or subscribing to one, it might be tempting to just look at the monthly fees and pick the one that’s lower.
But is the cheapest option really the cheapest for you?
Here’s the deal. There is no one-size-fits-all answer, and what’s best for someone else may not necessarily work best for you.
That is to say:
Buying isn’t always better than subscribing.
Subscribing isn’t always better than buying.
We’ve already shown you the individual benefits of subscribing vs. buying in the previous blog, notably: the flexibility, ease of changing cars as needed, among others. But, surprisingly, there is a financial benefit to subscribing which we’d like to take you through as well and help you understand which option (buying or subscribing) suits you.
But before we do a more direct comparison, we must talk about depreciation.
Let’s say you bought a car for AED 60,000 this year. If you want to sell it next year, chances are, you won’t sell it for AED 60,000. That’s because as you use it, the car has depreciated. And the longer you own and use the car, the more the value depreciates over time.
Cars depreciate at different rates, but a helpful rule of thumb is that cars lose around 60% of their initial value after 5 years. (Woah. That’s a lot of money.)
So that’s the first consideration: depreciation. But when you’re buying a car through financing, there are other costs you will be subject to, like:
- Down payment – the amount you’ll pay before paying off the rest of your car loan in installments
- Interest rate – the amount you’ll pay the bank for loaning you money to purchase your car
- Insurance – mandatory here in the UAE
- Yearly maintenance, servicing, repairs – if you’re buying a brand new car, this might be covered for the first year or two. Then this cost is yours to pay.
- Vehicle registration – also mandatory here in the UAE, and will cost you about AED 1,000 per year.
So when you’re buying a car, it might be tempting to think that the monthly loan repayment amount (that you pay back to your bank) is all you have to pay, but these additional costs increase it significantly — of course, in addition to the depreciation that you’re indirectly paying for.
How is subscribing different, then?
Subscribing gives you all the benefits of a car with one monthly all-inclusive payment — unlike buying where additional payments crop up unplanned for.
Subscribing also gives you the flexibility of switching cars to suit your needs. Because unless you’re buying and selling cars every few weeks (and who does that?), you’re stuck with the car you bought until you sell it, if ever.
So is it always more financially savvy for you to subscribe?
Let’s explain. Here’s a cost breakdown of the same car (the Nissan Kicks 2019 base model) and a comparison of buying vs. subscribing. The subscription data is based on 11 months of payments, because our analysis shows that most of our long-term customers stop and restart their subscriptions for a month while they’re travelling.
Notice how buying is about a lot more than just monthly bank payments? And the year-on-year savings you make with subscribing show clearly that it is financially wise to choose that as an option.
But there is a benefit to buying: if you buy a car and plan on keeping it for a long time, it eventually becomes more financially sound for you to buy. That is because, after a long enough period of time (i.e. after you’ve paid off the car), you will still have to insure and maintain the car, but you won’t be making any more bank payments.
But this tipping point, when buying becomes more financially savvy, takes a long time, and even then, your bought car will still be depreciating year-on-year, so when you eventually sell it, you will only recoup a fraction of its initial value. And consider this, you might buy a car in one phase of your life, but it may not suit your needs across the years and you may outgrow the type of car you purchase. For example: if you have kids and want a bigger car.
So is it better to buy or to subscribe?
The answer is: it depends on how specific and set-in-stone your needs are, and on how long you plan to keep the car for.
If you want the freedom to switch cars, flexibility to pause your subscription and therefore payments (when you go for a holiday for instance) and an overall more cost-effective option because you never have to worry about depreciation, then subscribing is the way to go.
If you plan on keeping a car for a long time (more than 4 years), then you should consider buying.
Note: All data, rates, prices and analysis accurate as of April 2021.