What’s the Best Financial Choice - Leasing, Buying, or Subscribing to a Car?
Buying a new car can be as stressful as it is exciting. From the length of the commitment to the costs involved, you’ll want to make sure you’re confident that the route you’ve chosen is the best for your situation.
Fortunately, there are more options than ever before, from traditional car ownership and leasing to the new kids on the block: monthly vehicle subscriptions. While the greater range of options means more freedom of choice for drivers, it can add more to consider when shopping for a new vehicle.
To help sort through the complexity of which new-car options make sense for your situation, we crunched the numbers and put together some hypothetical scenarios that include some of the most common considerations people face when shopping for a new car.
Quick move from Silicon Valley to the Big Apple
Jessica has been living in San Jose since graduating from college a year ago. She bought her new vehicle, a Ford Escape SE, off the dealership lot for a net price of $23,695 after a few incentives that saved her money off the sticker price. After 12 months, she receives an offer to move to New York City, so she will need to sell the car quickly.
So, was it worth it for Jessica to buy a car, or would she have been better off with a monthly subscription? Our numbers experts fired up their calculators, did all the comparisons, and found that Jessica would have paid about $935 per month financing the type of car she purchased. During the first month, she will pay a $2,670 downpayment and $328 for the title and registration. Additionally, Jessica will pay $355 every single month for the monthly payment and $164 insurance. In month 12, she will pay the $150 routine maintenance cost along with paying off the outstanding $16,766 loan on the car. When she sells the vehicle to the used car dealer, she will pocket $17,105.
By comparison, a subscription for the one year would have only been a $540 monthly fee for the same type of vehicle.
While it’s too late now for Jessica to save that money, it serves as a good reminder of how important factors like flexibility can be when selecting a transportation option – sometimes intangibles like flexibility can turn into real costs!
A Year at a Time in San Francisco
Jacob just moved to San Francisco and needs a practical sedan like a Toyota Camry LE. He isn’t sure exactly how long he will need the car, since he doesn’t know whether he’ll stay in the area over the next couple of years. He considers a 36 month lease with 15k annual miles, but it’s expensive and he’s nervous about committing to that long of a lease (and he found that the shorter-term leases are even more expensive).
All he knows for sure is that he doesn’t want to buy a car. But between leasing and subscribing which option is the most cost-effective in his particular situation? We calculated an average lease including MSRP, various charges, incentives, down payment, and more – and compared the two. Which option came out on top?
It turns out that if Jacob goes for the full 36 month lease, he’ll pay slightly more than a Canvas subscription. During the entirety of the 36 month term lease, the monthly car payment will cost $229 and the insurance will be $164 every single month. Downpayment, title and registration in the first month will total $2,386 off the bat. Every six months, Jacob will have to pay $150 for routine maintenance service which includes oil change, filter and more. Though those maintenance costs may not seem like a lot, they add up over the course of the 36 months to a total of $900. In month 30, tires will cost a total of $600. To break down the math, the 36 month term lease will cost Jacob $522/monthly fee, compared to $509/monthly fee for Canvas.
Things get even more interesting if you look at a 36 month lease with early termination at the one-year mark, which boosts the monthly cost of the lease to $758 – so his best bet is likely to go for the subscription.
Cost-Conscious in Mountain View
Jennifer is a frugal young tech executive living in Mountain View. Due to the high costs of living she faces as a young person building her career, one of Jennifer’s top considerations is the monthly payment.
She’s considering buying used – a 2015 Ford Fusion Titanium, since she’s seen some for sale online for around $18,000 near her target mileage of about 44,000. In addition to keeping monthly payments manageable, Jennifer is also hoping for a minimal down payment.
Jennifer has also entertained the idea of trying out a Canvas subscription, particularly since she doesn’t like to feel tied down and was hoping for a slightly shorter commitment than the usual 36-month lease term. She’s decided that she can commit to having the car for two years, but beyond that she isn’t certain.
So which option comes out cheaper when you crunch the numbers for Jennifer’s situation? In this case, it depends on how long she can commit to the car. If she buys the used vehicle, she’ll have slightly higher monthly payments, but at the end of five years, she’ll have paid off the vehicle and will no longer have a car payment. However, if she only keeps the purchased used car for two years, she will pay a monthly cost of $583. This would include $300 for the initial title and registration fee, $32/month for interest costs, $750/month for the principal repayment, and $164/month for insurance. Every six months, Jennifer will pay $150 for routine maintenance service and after 12 months, she will pay the $300 initial title and registration fee again. When she sells the car after the full two years, she will get $8,830 back.
If Jennifer would have opted for a Canvas subscription, she would have paid a $560 monthly fee instead of $583.
Expectant Parents Upsizing in Venice Beach
In Venice Beach, Ryan and Mel are about to become parents. They had financed a Focus SE hatchback for 3 years, but after deciding to expand their family, they now realize they are going to need a bigger car. After doing some research and debating, they have decided to get a Ford Edge. However, they want to be careful not to spend too much more than the $954/monthly fee that they currently spend on the Focus they bought.
This couple is fairly average in the amount of driving they expect to do each year: no more than the typical 15,000 annual miles. They don’t want to lease, but have considered buying or subscribing to the new Edge. So which option comes out on top?
In this case, the numbers are relatively close: about $579 per month to finance the purchase of the Edge, vs. $609 per month to subscribe to the Edge. The monthly bill for the purchased Edge would include a $415 principal repayment and a $164 insurance payment every single month. Initially, they’ll have to shell out $4,342 for the downpayment and title and registration. They will pay $150 during month 6 for routine maintenance service. However, the normalized costs over 60 months are in favor of subscribing: $586 for Canvas versus $649 per month for the purchased vehicle.
For Ryan and Mel it may come down to whether they want the flexibility of a monthly subscription or the benefits of purchasing, like getting to hang on to the vehicle after the end of the financing period.
Six Months in Hollywood
Hannah only needs a car for six months while living in Hollywood for a professional opportunity. Given that such a short-term arrangement is a little unusual, she’s unsure which of three auto options would make the most sense: renting a car, subscribing, or buying and selling a used car for that short an amount of time.
We once again ran the numbers, making some assumptions about mileage, taxes, maintenance, depreciation, and all the other relevant factors, and assuming a comparable rental option like a Toyota Camry from Enterprise.
In this case, Canvas came out significantly ahead of the her options, with a total monthly cost of just $637. The Enterprise rental was the next-most affordable at $923 per month, which included an $891 monthly payment and a monthly $32 vehicle license recovery fee. Purchasing and reselling the vehicle made the least sense at a whopping $1,004 per month. This hefty monthly fee includes a $57 interest cost, a $270 principal repayment, and a $164 insurance payment. Also, this option would include a $1,800 down payment and a $300 title & registration payment. During month 6, routine maintenance service will cost $150.
Hannah’s decision seems pretty easy.
Bringing it all Together
No two people will have the exact same transportation needs, but hopefully the hypothetical examples presented here will help shed some light on how different circumstances can influence which choice ends up making the most sense.
Cost isn’t the only factor to consider – like the folks in our examples, the level of flexibility offered by vehicle subscriptions can be compelling even when the monthly payment is slightly higher when compared to buying or leasing.
Whichever choice works best for you, we wish you well on your exciting new-car adventure. Drive safely!