The New BIG Thing In Electric Car Finance?
There's a new kid on the car finance block: Subscriptions.
But is it 'A Good Thing', or is it fad created to lighten your wallet?
We've already covered traditional car finance for retail (e.g. personal) customers in our existing guides - you can link to them from here:
So now let's explain subscriptions for you, though we'll still start by explaining what's in a traditional car finance package so you can see the difference.
But if you're eager to jump to more information about car subscriptions then click here.
What's In A Traditional Car Finance Plan?
If you've previously bought a new car on finance then you'll be familiar with what's at the heart of funding a car:
- depreciation; and
- interest charges
In addition you'll also have the cost of;
- servicing, maintenance and tyres;
- the annual tax dic renewal; and
If you've also taken out a finance plan from a car dealership you may also have paid for an extended warranty, a servicing plan and insurance to cover you for any loss before the finance plan is fully paid up - sometimes known as 'GAP/ETI insurance'.
GAP/ETI insurance covers you for;
- an accident writing off the car before you have made enough payments to cover the insured value of the car; and/or
- having to end the finance plan repayments early because you have lost your job.
Now, as you start totting up the profile of all these individual costs for running a car, you might start to think that it would be easier to have one all-inclusive payment to deal with all your car running costs, and that's where car subscriptions come into the picture.
What Are Car Subscriptions?
In a car subscription plan you pay one fixed monthly fee for the car.
That fee covers you for;
- servicing, maintenance and tyres;
- breakdown recovery.
There will typically be an agreed fixed monthly mileage for the car, though typically this can be extended by an extra payment or you can roll-over mileage to deal with 'unders and overs' each month.
Typically all that's left for you to pay is for fuel.
That could be petrol/diesel through an ICE ('internal combustion engine') or hybrid car, or electricity for an electric car (some car subscription plans allow you to add into the plan the cost of a home wall charger for your electric car).
Car subscriptions also typically allow you to;
- stop the subscription (subject to a minimum notice period or minimum term for the subscription); or
- change the car at intervals, allowing you to have, say, a convertible car during the summer and a 4-wheel drive car during the winter.
So What's The Catch In A Subscription?
For many customers, the catch in car subscriptions is the cost.
Because everything is wrapped into one, the subscription plan has to cater for all types of drivers in terms of;
- finance underwriting (how reliable you are at making monthly finance payments);
- insurance scoring (have you had more than the average number of motor accidents?); and
- how well you look after your car (presenting it for maintenance/recalls and repairs, cleaning and minor damage, etc)
Because of this, if you score well for credit and motor insurance and look after your car, a traditional car finance plan plus a motor insurance policy may well be cheaper than a car subscription plan.
And if you don't score well then car subscription companies probably aren't going to want you in their plan, or will dump you at your next subscription renewal.
So remember that what car subscription companies want as a customer is someone who fits a good credit profile and takes care of their cars, but wants to swap cars every now and again, which ordinarily would be expensive.
So what are the advantages and disadvantages of car subscription plans?
The Advantages of Car Subscription Plans
You pay a monthly rental to cover all your costs of using a car or van.
You can cancel the subscription (with notice) and just hand back the vehicle.
Monthly subscription covers depreciation, servicing and repairs, tyres, insurance and breakdown recovery and, sometimes, electric car wall chargers.
For electric cars (and indeed for any type of car), you can swap to a new car whenever you want to keep pace with developments (e.g. electric car battery develeopments and other in-car technology).
You get a fixed monthly 'allowance' of inclusive mileage and can top-up or 'roll-over' mileage if necessary.
The Disadvantages of Car Subscription Plans
Monthly payments are typically a lot more expensive than traditional car finance or leasing.
If the vehicle is damaged outside the insurance terms you are liable for the repair costs.
Recharging points for electric cars (other than home charging) may be limited to those operated by the subscription company or its affiliates.
Usage restrictions may apply to limit how you drive the vehicle and 'black-box' telematics may report on your driving behaviour.
So, Are Car Subscription Plans A Good Thing?
The jury is still out, not least because one of the larger car subscription plans in the UK went bust in September 2023.
Car leasing and finance companies do go bust too, but the history of car finance is a long one whereas car subscription plans are a relatively recent addition to the market.
And car manufacturers are getting in on the act too, especially because of the option to reach their market direct.
With the financial clout of car manufacturers supporting their own subscription operations the financial stability of (at least manufacturer) car subscription plans would seem more secure.
Read More On Car Finance
You can read more about the alternative finance options for new cars (and vans) in our finance library or by clicking on the earlier links.