It’s easy to assume that if you can afford to buy your car, you should. After all, owning something is always better on your wallet than renting, right? Well, not necessarily - especially when it comes to vehicles.
Getting a new car is exciting, even if it’s just new to you. But in all this excitement, it’s critical to keep your eye on the bottom line and think through the the various expenses that sometimes get forgotten. While it’s natural to assume that you’ll save money over the long term by owning something forever, that isn’t always the case. As it turns out, today’s world of tech-friendly sharing platforms offer innovative alternatives to ownership that may surprisingly prove to be a better fit for your personal financial situation.
Subscription services offer several economic benefits over buying. Of course, car subscriptions aren’t right for everyone, but it’s something to consider before making your next auto purchase. Regardless, if you’re shopping around for a car (whether new or old), there are some things other than paint color and sunroofs that you should take into consideration.
It’s no secret that newer cars are safer and more reliable, from a logical perspective. There’s also no denying that purchasing the latest car can be exhilarating and a bit of an ego boost. But the second you drive that brand-new, shiny vehicle off the lot, you experience a major financial loss - depreciation.
Depreciation is the decline of an asset’s value due to wear and tear. Newer cars notoriously lose their value at a much more significant rate than older cars do. Not-so-fun fact: a new car loses an average of one-third of its value in its first year. Within four years, it’s depreciated to half of its original value. Yikes.
According to the folks at Edmunds who have crunched the numbers in The Bad News - and Some Good News - About Depreciation , after five years, the car is worth 37% of what you paid for it. Because cars lose their value so quickly (especially compared to other assets you can purchase), that depreciation itself will typically cost you more than what you would pay to keep an older car functioning.
Maintenance and Repair
Some of us believe that driving a car until the wheels fall off is the best way to truly get our money’s worth from our vehicles. However, nothing can be further from the actual truth especially when you think about long-term costs. Extra maintenance like replacing worn out parts can get expensive fast, especially once your odometer hits 100,000 miles. Every year that you own your car, you can expect to shell out more on upkeep and restorations. After all, high-mileage used cars are a bargain for a reason.
Maintaining a vehicle can be stressful and unreliable, but the price tag of neglecting your car’s needs can be mind-boggling. Major repairs can drain your savings account, and quick. The worst part is that you may never know just how much you’ll end up paying out of pocket until you’ve already taken your car in. This is especially true if you disregard regular maintenance like tire rotations, oil changes, filter replacements, and brake pads. Let’s also not forget the upsale pitches you get from your mechanics. “Do you really need the undercoating? Of course you do! That will be $500 please.”
Even if you’re lucky and never have to deal with the headache of a full-on car breakdown, vehicle maintenance itself can be very expensive. Consumer Reports highlights the skyrocketing expenses of repairs and maintenance in their article The Cost of Car Ownership Over Time . Depending on the age of your car, the make and model, and its amenities, you can end up spending hundreds, if not thousands, of dollars every single year at the mechanic. For example, a ten year-old Mercedes-Benz will cost you over $1,000 on a yearly basis - just to keep it on the road. A similar BMW will run you over $1,100 per year in maintenance and repair expenses.
When you’re purchasing your car, it can be easy to solely look at the price on the tag. It can be easy to forget adding in some of the other costs like auto insurance, which can make a pretty large dent. Many factors affect the costs of insurance. According to the AAA , as of 2015, the average annual cost of insuring a car was around $1,115, which is 8.99% higher than the previous year. So, what about opting for low liability insurance to save some money? In Low-Liability Auto Coverage Is a Good Deal– if you Don’t Have Much to Lose , the author explain that a low-liability auto coverage plan could be the most expensive choice in the long run. One detrimental accident could strip drivers of absolutely everything if they are sued for more than the limits of the policy. Selecting an auto insurance deductible can be a tricky decision, and it heavily depends on what you are comfortable with and how risk averse you may be.
Deductibles are what you pay out of pocket to fix your car if you are involved in an accident, and they can range from $500-$2,500 according to CarInsurance. That means that if you are in an accident that caused $4,000 in damages and your deductible was $1,000, you would pay $1,000 out of your pocket while your insurance would cover the remaining $3,000. Sometimes people opt for a higher deductible to bring down their monthly price, but it can be a high, unexpected expense should you be in an accident.
Car Subscriptions Offer Substantial Benefits
The ease of mind of advanced safety features and the convenience of never having to pay out of pocket mechanic is enough for some people to eat the cost of depreciation for new and newer cars. But, fortunately, there are better ways. You can stay in a low-mileage, late-model car without busting your budget using vehicle subscription services. When you subscribe to a service like Canvas, the agency takes care of the vehicle maintenance and repair. Does your vehicle need a tire rotation? No biggie. Car catastrophe on the side of the road? Don’t sweat it – our cars come with roadside assistance and we take care of the cost of most repairs. To anyone who has recently experienced the stressful and expensive ordeal of dealing with a broken down car, this may sound like a dream. Plus, in the long run, subscription fees are much, much cheaper than buying new.
Owning a car is a personal (and exciting) decision for many of us, and if buying a vehicle is important to you then, by all means, you should do it. But before you do, make sure you know all the facts. And you may find that subscribing to a car may be a more cost effective choice than owning your car. It can provide the freedom of flexible term lengths while avoiding costs like maintenance and depreciation. Canvas has developed an automobile subscription service that’s designed to meet the needs of today’s drivers, so be sure to check it out when you’re on the search for your next vehicle. What you find may pleasantly surprise you - and your wallet.