Are car subscriptions the answer to avoiding car loan debt?

The cost of living or simple shifting of lifestyles has meant that forking out for a huge car loan is not as enticing as it once was. Thankfully, there are options.

For so many people, having access to a car is not just a luxury but a necessity. So what does one do when the high cost of living means owning a car seems impossible?

This is what Sydneysider Carla Federico had to grapple with.

Carla's job means she needs to be in different locations throughout the day, and so having a car is a requirement.

But the cost of living left her concerned.

"With the high cost of living I had concerns about taking out a loan, paying interest and being locked into debt," she said.

She's not wrong to be cautious. According to Finder's Consumer Sentiment Tracker, the average car loan debt is a little over $13,000. 1 in 5 people with a car loan say it is causing them financial stress.

So instead, Carla shared her mum's car. Knowing this to be an impractical solution, and keen to explore whether an electric vehicle could reduce some of her overall costs, Carla began looking at other options.

What she found was Carly car subscriptions.

How a car subscription helped Carla

A car subscription service lets you borrow a car for at least 30 days: think monthly streaming subscriptions, but instead of Netflix shows you get a vehicle to drive!

In particular, the service encourages people to 'try before they buy' an electric vehicle (EV). For anyone questioning the benefits and practicality of an electric car, they can subscribe to Carly, drive an EV for at least 30 days, and decide whether it works for them before they buy.

That's what Carla did and she has loved the experience. She now knows that when the time is right to buy her own car, she'd be happy with an EV For now, the subscriptions work perfectly for her.

As well as the fuel costs she's saving on through the EV, she doesn't need to worry about other car costs or major repair expenses. Registration, insurance, maintenance, and roadside assistance are all included, and the monthly repayments are easy for her to manage.

"I feel like there is so much uncertainty around cost of living pressures, and when things will get better," she said.

"Subscribing to a car right now feels like a much safer and smarter option than having a big amount of debt hanging over my head. I know if anything happens and I am no longer able to afford the subscription payments I can switch to a cheaper car or cancel the subscription with 30 days notice."

How the costs stack up

We looked at a Carly car subscription compared with a generic car loan, using average costs and fees.

Carly's car subscription tiers start from $231 a week. Users pay no deposit, there are no fees and the lowest tier comes with 1,000km free each month (higher tiers offer 2,000km free per month). It also comes with included roadside assistance, comprehensive insurance, and service and maintenance.

The cost of a car with the same make, model and year offered at the lower price end of Carly's subscriptions start from around $24,000. The average car loan interest rate on Finder is 7.48%. This would mean your monthly repayments for a 5 year loan term are $481.

Add in the average car insurance cost from Bingle for a 30-year-old driver of $839 a year and roadside assistance from about $72 a year. The cost of servicing your car can range from $300 to $400 depending on your location as well.

In the first year of your car loan your costs will amount to just under $9,000 a year, whereas your car subscription will be a little over $12,000.

The real cost analysis and right answer comes down to your own situation.

If you know you need a car year-round and long-term, taking out a car loan is probably right for you. But car subscriptions are a great solution for those considering whether they need a car or those who know they need them sporadically.

Car subscriptions on the rise as costs rise and lifestyles shift

CEO of Carly Holdings, Chris Noone, reiterates that car subscriptions are right for some peoples' circumstances right now, but that might change later on.

"When economic conditions improve you may feel more confident to buy or finance a car, but in the meantime, car subscription ensures you are not stranded without wheels," he says.

Interest in car subscriptions has increased hugely. Carly itself has seen a 58% increase in sales.

For people like Carla, that's a response to the cost of living.

"If cost of living pressures are an issue, and while interest rates are high, it doesn't make much sense to be paying a car loan," Chris says.

"Car subscription gives you more flexibility to get the car that fits your current budget right now and you have the option to stop the subscription if you really want to knuckle down and save money for a while."

It's not all about the cost. Chris also points to people having more varied lifestyles where they may not need a car year-round or they may expect their car needs to change throughout the year.

"For many people owning a car for five or more years no longer makes sense as many find that they do not use it year round, but they still incur costs for insurance, maintenance, registration, depreciation etc.," Chris adds.

"Some people are fortunate to be jetting off to Europe for the summer, and many of them are leaving their cars at home but still paying all the costs. It makes more sense to subscribe to a car when you really need it and hand it back when you don't need it – and have zero costs while you are not using it!"