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Is Canvas Cheaper Than Buying a Used Car?
by Benjamin P. • June 5, 2019

Is a Canvas Car Subscription Cheaper Than Buying a Used Car?

Before Canvas came along, your options for getting a new set of wheels were pretty limited: You could lease, or you could buy. We’ve already covered how a Canvas car subscription beats the costs of leasing - but what about buying a used car? Isn’t that the ultimate low-cost way to get on the road?

The surprising answer is: Only if you drive the car for a very, very long time (i.e. for years after the loan is paid off). Otherwise, a Canvas car subscription can actually save you up to $97 per month compared to buying - and without any of the stress and heartache of car ownership. Here’s how it works.

The Background

Let’s say you’re moving to the Bay Area for a new job. As a lifelong New Yorker, you’ve gotten by just fine without a car, but now it’s time to take the plunge. With cost of living already sky-high in the San Francisco region, it’s crucial to keep your transportation costs as low as possible. You don’t need anything fancy - just a practical sedan to get you around town.

So you check out the local dealerships, and good news: There’s a pristine 2018 Chevrolet Impala on sale for just $19,000. How much will that cost you per month? Let’s do some quick, back-of-the-envelope math. You’re ready to fork over a $4,000 down payment, which means your auto loan just needs to cover the remaining $15,000. So your monthly payment will be somewhere around $221 for a standard 68-month loan (i.e. $15,000 divided by 68 months).

But what about Canvas? A car subscription might be easier and more flexible than buying used - but how costly is it? Checking the website, you find that the same car - a 2018 Chevy Impala - will cost you $589 per month. And of course, when you buy a used car, you own it, and can resell it to make back some of your money. So it’s a no-brainer - buying a used car is cheaper… isn’t it?

Appearances, it turns out, are quite deceiving. Let’s dig into the hidden costs of used car ownership to discover how Canvas actually saves you money.

The Hidden Costs of Buying a Used Car

Loan Interest

We began with some quick math: $15,000 spread out over 68 months is $221 per month. But of course, loans aren’t free. Whether you finance your purchase through the dealership or take out a loan from your bank, the loan issuer will charge you a percentage fee on the total loan payment. That percentage is the interest you pay.

In this case, let’s say your interest rate is 4.5%. That means, over the course of your 68-month loan, you’ll end up paying an additional $2,022 in interest. Or to put it another way, every month you’ll be paying nearly $30 more than you initially estimated. Your true monthly expense, factoring in interest, is $250.

Monthly cost of interest: $30

**Running total for monthly used car expenses: $250 **

Down Payment

Remember that $4,000 down payment we mentioned earlier? It’s a smart move when you buy a used car. The more money you can spend upfront, the smaller your total loan - and the less interest you’ll be charged over the coming years.

But of course, just because it’s a one-time cost doesn’t mean it’s free money. For a true, apples-to-apples comparison between buying used and driving with Canvas, we have to factor in the down payment.

So imagine you’re spreading that $4,000 cost across the next 68 months. It works out to $59 per month. That means your true monthly expenses just jumped to $309.

Monthly cost of down payment (amortized): $59

Running total for monthly used car expenses: $309

Auto Insurance

Of course, you wouldn’t dream of getting on the road without car insurance. It’s required by law, and an essential way to protect yourself from the potential financial catastrophe of a serious accident. In fact, insurance is such a normal part of driving, it’s easy to forget it when you’re tallying up costs.

But when you drive with Canvas, you don’t have to. Every Canvas driver is automatically protected by high-quality insurance. Buying the same kind of policy for yourself would cost you around $164 per month. That means your monthly expenses to drive a used car just leapt to $473.

Monthly cost of auto insurance: $164

Running total for monthly used car expenses: $473

Repairs & Maintenance

Here’s a shocking car-ownership statistic: $2,132. That’s how much the average US household spends every year on car maintenance and repairs, according to the Bureau of Labor Statistics. It’s hard to believe the occasional oil change and flat fix could add up to such large numbers… but just think about the cost of repairing a big-ticket item, like a blown transmission. (And if you’re purchasing a used car, those sorts of issues are all the more likely.)

With Canvas, repairs and maintenance don’t cost you a cent. Just bring your car into one of our approved service centers, and we’ll take care of everything - whether it needs normal wear-and-tear parts replaced, new brake pads, a suspension adjustment, or a full engine rebuild. Everything reasonable is covered.

To factor repair and maintenance costs into your monthly used car costs, we divide $2,132 by 12 and get $178. Your running total just jumped to $651.

Monthly cost of repairs & maintenance: $178

Running total for monthly used car expenses: $651

Title, Registration & Doc Fees

Every time a car changes hands, a whole slew of fees is paid to the state’s Department of Motor Vehicles (DMV). These are required by law, and never advertised by the dealer. In California, that includes a $15 fee for the car’s title transfer, a $58 registration fee, an $8 “Smog Transfer” fee, a $25 fee for the California Highway Patrol, and a whopping $1 fee for your reflective license plate.

In addition, you need to pay a vehicle registration fee for 0.65% of the car’s value. In our case, that runs to $124, and it has to be paid every year for your annual car registration. Finally, the dealer also charges you a documentation or “doc” fee to process all this paperwork for you. In California, that’s generally $80 - though it can be much higher in other states.

That brings your total DMV costs to about $300 for the first year, and $124 per year thereafter, for a grand total of $920 over the life of your loan. All of this works out to an extra $14 per month, so your new running total is $665.

Monthly cost of DMV fees (amortized): $14

Running total for monthly used car expenses: $665

Advertising & Destination Fees

When dealerships purchase their new and used vehicles from manufacturers, those manufacturers charge an “Advertising Fee.” The idea is that the automakers are spending money to advertise to consumers, and the dealerships should help defray these costs. But dealers then pass these costs on to you. That’s why, when you purchase your used Impala, you’ll see an invoice itemizing the Advertising Fee. It’s typically somewhere around $400.

Similarly, when the dealer has your vehicle shipped to their lot (either from the manufacturer or from a third party) - there are costs involved. This could mean paying a transport truck to move your car, or simply hiring a driver to bring it to the dealership. This cost is typically listed as a “Destination Fee,” and can run to $1,000. These are yet more costs the dealer will pass on to you.

The combined advertising and destination fees add another $21 per month, which brings your running total to $686.

Monthly cost of Advertising & Destination fees (amortized): $21

Grant total monthly cost to buy a used car: $686

What About Taxes?

Sales tax on a car purchase is very complex, and it varies enormously between states, counties, and cities. In California, you could end up paying as much as 10.25% in total taxes for your used car purchase. To keep things simple, we’re leaving sales tax out of this analysis. But rest assured, the tax hit you pay on a Canvas car subscription won’t be any more than for a used car - and it may be significantly less.

Why Selling Your Car Won’t Help

Let’s step back and take a breath here. We’ve just discovered that the true cost of your used 2018 Chevrolet Impala is $686 per month, if you spread it across the length of your 68-month loan. Meanwhile, a Canvas subscription will have you driving the very same car for $589 per month - a savings of $97 every month for an easier, more flexible, all-around better experience.

But hang on! There’s a very important difference that we haven’t accounted for yet. When you buy a used car, you own it. That means you can trade it in or resell it later to recover some of your costs. Won’t that significantly bring down the price of owning a used car?

Generally speaking, no. And we can explain why in one unsavory little word: depreciation.

Depreciation: A Financial Slow Bleed

You’ve probably heard people say that a car loses value the moment you drive it off the lot. And it’s true - as soon as a car is “pre-owned,” other drivers will spend dramatically less on that vehicle.

But what you may not realize is how this loss of value - the car’s “depreciation” - adds up over time. Different cars hold their value at different rates, but a fair estimate is that a vehicle will lose 20% of its value after one year, and 15% every year following. A decade after buying your car, it’ll be worth just 10% of its original purchase price.

Here’s how depreciation might affect your 2018 Chevrolet Impala:

canvasvsusedcar.png

That’s why the only real way to make car ownership work in your economic favor is to drive your Impala for many years after you repay the loan (assuming it holds up that long). Trading in or reselling your used car just won’t offset the cost enough to change the equation. Let’s do the math.

How Selling Affects Your Bottom Line

Imagine that 68 months have passed since you bought your used Impala, and you’ve finally paid off the loan. Maybe you’re ready to move back to NYC, where a car is more trouble than it’s worth. Or maybe you’re working at a new office, where it’s easy to commute by bicycle. Or perhaps you’ve started sharing a car with a partner or roommate. In any case, it’s time to get rid of the old ride.

But thanks to depreciation, your car is now only worth $5,919 on the market, *if *you can find a private buyer who’s interested. (If not, you can always take it to a car dealership. They’ll pay even less for it - around $5,202.) Let’s say you get lucky and find a private buyer on Craigslist. You pocket the $5,919. How much of your car expenses over the past 5 years does that cover?

If you spread that money over the life of your loan, it reduces your monthly costs to $599 - a touch more than the $589 you’d pay for a Canvas car subscription. It’s an improvement, but not a game-changer.

You might think it would help to sell the car sooner, before it’s depreciated so much. But that means you’ll have more of your auto loan left outstanding - which you’ll need to pay off with the proceeds from your car sale. For instance, you could sell at 36 months and pull in $10,107 for your car. But most of that money goes to paying off the remaining $7,072 of your loan. Your true monthly car expenses then only drop to $602. You’re saving slightly less than if you’d waited.

Canvas & Buying Used: A World of Difference

So there you have it. Buying, driving, and reselling a used car can end up being *more *expensive than a Canvas subscription. It’s also an outrageously stressful and demanding experience. There’s a real emotional and psychological cost to haggling with dealers, making a high-stakes purchase, and holding your breath every time the engine makes an odd noise.

Can buying a used car work in your financial favor? Yes… if you’re willing to pay the stress tax, and the car keeps running for years to come. But for more and more people, that’s just not a realistic option. Most of us, especially millennials and younger professionals, don’t know what our lives will look like in five years - much less what our transportation needs will be.

That’s the real beauty of Canvas. You don’t have to predict the future, commit to a ten-year plan, or become an expert in depreciation rates to get an affordable, flexible ride that suits your lifestyle. Just subscribe, start driving, and let us handle the insurance, maintenance, and other headachy details. When you don’t need a car anymore, you can simply return it and walk away.

And if you can get all of those benefits *and *save money… Well, we’re biased, but we think that’s a good deal in every sense of the word.

P.S. Want to read some more of our comparison blog posts? Check out “Canvas vs. Leasing” and “Canvas vs. Leasing pt. 2”.