Car subscription service Carbar raises $28.9m - Is it better to own your own car, or is renting the way of the future?

A car lease service has raised almost $30 million through a Netflix-adjacent subscription model, reigniting the age-old question of whether it’s better to purchase a vehicle or if renting is the way of the future.

Australian-based company, Carbar, has raised $28.9 million by betting on Aussie appetites for subscription-based technology, including the promotion of electric vehicles such as Tesla

Individual and corporate customers are charged weekly fees to rent vehicles, bypassing the bigger costs of car ownership, such as insurance, maintenance, and registration.

According to a recent Australian Financial Review article, a 2022 Tesla Model 3 electric car costs $399 a week on Carbar, compared to a $59,900 “plus on-road costs ticket price to buy one outright in Australia”.

So, if car subscription platforms are becoming more popular, Aussies may be wondering if it’s still better to purchase a vehicle outright, or if renting is the way to go?

The cost of renting a car

Car subscription is one type of option available to Aussies who are looking towards alternatives to buying a car, including long-term rentals, or leasing.

Unlike long-term rental or leasing, Carbar advises that its subscription model also offers the option of delivery and pick up, accident management, plus no lock-in contract.

According to Carbar, these are some examples of the potential costs a customer may experience for four different car models.

Source: Carbar.com.au

Keep in mind that these are just some examples of pricing options available, with prices differentiating based on individual make, model, interior details and more.

The cost of a car loan

RateCity crunched the numbers on a standard car loan of $20,000 over five years, based on some of the lowest interest rates on the database.

Source: RateCity.com.au. Figures based on 5-year, $20,000 car loan.

It’s difficult to compare the cost of car rental to a car loan as the value of the car and the interest rate charged will depend on your financial situation and goals, but it’s worth keeping this in mind as a starting off point for your comparison.

The benefits and disadvantages of renting a car

It’s no secret that car ownership comes with its own upfront and ongoing costs. Not only may you have to pay stamp duty when purchasing the vehicle, you’ll also have to account for:

• Registration costs
• Petrol
• Ongoing maintenance and repairs
• Car insurance

These costs are generally covered when you opt for a lease or rental arrangement. This may be particularly advantageous for Aussies looking for a short-term vehicle option, such as those living in a new city for a few weeks/months for work. You’d gain the benefits of having a vehicle, without having to worry about the pesky costs associated with ownership.

You may also get to avoid one of the most significant costs associated with a car loan - the interest rate. Borrowing a car typically means making set repayments on a regular basis as determined by the provider. A car loan involves repaying the total car value, plus the interest and fees charged by the financer.

Speaking of interest, if you plan on using the car for business, interest charged on a car loan is not tax deductable. But a portion of a leased car’s depreciation and financing costs may be tax deductable.

Alternatively, purchasing a car through vehicle finance means you’ll own the asset at the end of the day, assuming you meet all your ongoing repayments. For Aussies who consider rent money to be “dead” money, it may be worthwhile to own the car they’re driving outright, even if the value may depreciate.

Further, the cost of renting a car will begin to add up the longer you use it. In some instances, it may be better to buy the car so that your repayments will have a fixed end period (typically 1-5 years for a car loan). If you’ll be borrowing a vehicle for 12 months or more, it may be worth doing some calculations to determine if you’d be better off buying rather than renting.

How to compare rent-a-car prices versus car loans

If you’ve found a potential car rental that may suit your needs and budget, it’s worth comparing this cost to a similarly priced car loan.

You can do this buy:

1. Hopping on a vehicle sales website, such as CarsGuide, to see typical price ranges for a vehicle you’re considering renting.
2. Using RateCity’s car loan comparison table to find potential car loan options. Enter the amount you’d borrow (the value of the car) and filter down your options to view potential interest rates that may suit your needs.
3. Using RateCity’s Car Loan Repayment Calculator and entering the vehicle price. Then enter one or more of the potential car loan interest rates from the comparison table and the loan term you’d prefer.
4. Pressing ‘Calculate now’ to discover how much your estimated repayments may be if you opted to purchase this vehicle as opposed to renting it.

Keep in mind that to be approved for a car loan you’ll need to meet the eligibility criteria set by the lender, including meeting income minimum requirements, and having a good to excellent credit score. In some instances, renting a vehicle may be more accessible to everyday Aussies than gaining approval for a car loan as the lending criteria may be less strict.

Ultimately, the best option for you to get yourself a set of wheels will depend on your financial situation, budget, and goals. If you’re still unsure which option may best suit you, it may be worth seeking expert advice from a car broker today.

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