Car subscription vs car finance: Which is better?
Buy or rent? South Africans like owning. But car subscriptions in South Africa could be a smarter way to be mobile for you and your family.
Subscriptions rule your life. From your device and data contracts to streaming services, monthly expenses are stacked with subscription fees. But what about car subscriptions in South Africa?
Unless you are a cash buyer, the conventional way to purchase a vehicle is to finance it. That means you have full discretion over how much and where you drive your financed vehicle. And at the end of the financial term, it becomes yours to keep or resell.
But what if you don’t want to pay more for a vehicle that will be underused? That’s where a vehicle subscription can be the solution, rather than traditional financing. But what are the real differences? And does subscribing to or financing a vehicle in South Africa differ from other global markets?
We’ve analysed the structure of car subscriptions in South Africa and compared them to more traditional vehicle ownership financing. This will allow you to have all the insights you need to choose the financing and ownership model that works best for your needs.
It is just a fancy “lease?”
Experienced automotive finance people will tell you a subscription is just a trendy word for leasing. You bundle all the monthly motoring costs into a single payment, which has some advantages. It gives you better visibility into your operating expenses by consolidating them into a single payment.
An advantage is that it allows you to think smarter about your budgeting without having to track and reconcile separate monthly payments for vehicle, insurance, and maintenance.
The subscription or lease package can also offer a slight frictional cost benefit. How? Well, you pay only 1 monthly transaction fee instead of 3 or 4 fees for separate vehicle, insurance, maintenance, or additional coverage plans.
The depreciation workaround
An under-appreciated benefit of leasing is that you can avoid the depreciation trap. That’s something many new vehicle buyers underestimate.
If you buy a model or brand that starts suffering reliability issues, multiple recalls, or inadequate support for its local after-sales service needs, you could suffer severe vehicle depreciation during your ownership period.
Depreciation is often the silent creator of debt and credit distress, particularly in car financing and complex vehicle ownership structures. It’s difficult for most buyers to understand the quite opaque future depreciation risk. But the consequences can be devastating, especially if you have taken the upfront convenience and long-term risk of purchasing with a balloon payment.
Balloon payments are generally a terrible idea because you are lulled into a false sense of security about what you can afford. Often, you’re enticed to buy-up to a model and trim level you can’t really afford, with the shock of a big settlement number (the balloon) at the end of your repayment term. This is where depreciation can be a real disaster: you might be in a position where your car is worth a lot less than you owe on it, as mandated by the balloon-repayment settlement contract.
How much will you pay monthly? Use the Cars.co.za finance calculator
Smarter for luxury vehicles?
A subscription or lease transfers the depreciation risk to the dealership or brand. You know exactly what you are in for when the lease or subscription ends. If the model you’re subscribing to has been well kept and developed a good reputation during your ownership term, that’s to the benefit of the dealership or brand, which can then market it at a neat profit.
If it’s been a depreciation disaster, it becomes the dealership or brand’s problem (to a certain extent), and they take the loss when they try to remarket the car.
Depreciation numbers can become scarily big on more expensive cars. For drivers who can look beyond the status of “owning”, a subscription or lease can be the smarter way to use a car with all the safety or tech features you desire, without risking the guaranteed depreciation and capital loss.
Finance gives you more freedom
If subscribing is such a smart solution, why transfer the depreciation and mechanical gremlin risk to the brand and dealership? Why finance at all?
For many South Africans, the idea of taking ownership of a depreciating asset at the end of its payment term still matters. The status of ownership is real for South African buyers. And if you buy smart, like a popular Toyota model, and keep it in good condition, finance can be smart. You’ll be in a strong position for trade-in, instead of a subscription model, where you are left with nothing once the period ends.
Car subscriptions in South Africa are a terrible idea for drivers who don’t have complete control over their schedules and routines. Or for people who do a lot of highway driving and prefer a road trip to flying for long weekends and vacations. The mileage limitations on vehicle subscriptions can limit your lifestyle and mobility, especially in South Africa, where the average driving mileage is higher than in many other global markets.
If you need the freedom to use your vehicle without mileage limitations, and know that even the idea of approaching a mileage limit creates real anxiety for you, a vehicle subscription is a terrible idea. You should rather finance.
For families where the routine and driving schedule involve many incidental journeys and unplanned rerouting, the vehicle subscription’s mileage limit is too restrictive. Financing a vehicle is better because you don’t have to keep worrying about the mileage limit every time you back out of your garage.
Can you afford what you want? Use the Cars.co.za affordability calculator
Cabin wear and repair costs
Also consider where in South Africa you are driving. The fine print in a vehicle subscription contract is severe on seemingly minor cosmetic and mechanical details.
Minor stone chips that don’t bother you will become a point of contention when your vehicle subscription ends and the handover evaluation takes place. Drive a lot of dirt roads for those weekends away? Who is going to cover the accelerated wear of those suspension bushings, or the interior trim rattle? You or the brand that offered the subscription?
Have pets or little kids? Do you mountain bike or do a water sport that involves dirty/wet gear and sharp-edged objects travelling inside the vehicle? Think about how all those factors influence the cabin trim wear on your vehicle. And how expensive small cabin trim repairs can be at the end of a vehicle subscription period.
If you are an outdoorsy South African couple or family, the mileage limit or fine print of a subscription could create too much discrepancy and admin to be worth the savings from the monthly payment.
Vehicle subscriptions are innovative and can work for a niche group of South Africans. Who are they? Those people who don’t drive much and take immaculate care of their vehicles. But for most drivers, the traditional financing model (even with all that depreciation) is often the best option instead of car subscription in South Africa.