Historically, the preference was to own your vehicle outright, and it almost lent itself to determining one’s social status - in that the more expensive the vehicle, the wealthier the individual.
However, over time, the automotive industry has developed financial products to help vehicle owners in purchasing the vehicle of their dreams, allowing them to pay back the loan over time. Until now, these included options such as:
- Hire purchase: this is like having a mortgage. You normally put down a deposit and repay the balance in instalments over a loan period. These payments will also include interest. At the end of the loan period, the car is yours.
- Personal contract purchase (PCP): a good option if you like changing your car every two or three years. It isn’t a loan for the full cost of the car. Your loan covers the difference between the car’s value new and the car’s value at the end of the hire agreement. At the end of the hire agreement, you could either give the car back or agree to fund the balance outstanding (the ‘balloon’ payment).
Fast forward to today, and there’s a noticeable evolution taking place in the way we access goods and services. Whether it’s our increased familiarity with services such as Spotify and Netflix, or the growth in the sharing economy such as AirBnB, one thing is certain: our notion of ownership is changing, and subscription services are becoming more attractive – even in the automotive market.
Where the norm may previously have been to purchase the vehicle outright or use one of the finance options available above, there are even more options to consider today. Many no longer want the hassle of disposing of a depreciating asset in order to purchase our next vehicle; and some only need a vehicle for a few days, weeks or months at a time, so don’t want the long term commitment of owning, maintaining and insuring a vehicle.
These shifts in attitudes and behaviours have led to a rise in:
- Vehicle leasing (personal/business), which is like renting a house or flat: you pay a fixed monthly fee over an agreed time. You’ll normally pay a deposit, which can be three to six times the monthly payment you’d make. At the end of the agreement, you hand the car back. And if it’s in good condition and you’re within the agreed mileage, you shouldn’t have to pay a penny extra.
In short, a simple contract paid monthly where you can hand the vehicle back at the end of the contract without having to worry about the depreciation.
- Vehicle subscription/shared mobility, which allows you to access a vehicle, as and when required (for a day/s, week/s or month/s), which is fully insured and maintained by the subscription provider. By subscribing to a service (much like a Netflix, Spotify, etc.), you create a profile and, once accepted, can start paying to use the vehicles within that service.
In short, you subscribe to the service and pay to use a vehicle for a length of time convenient to you, without the need to insure or maintain that vehicle.
Post pandemic, as people rethink their work life arrangements, many are reconsidering the need to own two (or more) cars. A couple may need one car until children come along, and then consider a second car, perhaps an electric option, as the “run around”.
Arranging a car on subscription is a slightly less daunting prospect, particularly with an electric car. It allows you to test how it fits in with your lifestyle – a “try before you buy” option – with the added bonus of allowing you to offset your petrol usage. Many subscription companies are internet based, so you can shop for your car online, and it will be delivered directly to your door. The days of visiting the car showroom could soon become a trip down memory lane!
In response to this on-demand generation, insurance companies are adapting and developing new options to ensure you have the right protection in place.
Whatever you decide, it’s important to talk the options through with someone who understands the market and your preferences.