After Tiffany Ford McLemore’s car was destroyed in an accident, the single mother of four needed a new one. Quickly.
Yet she didn’t want to take out another auto loan and so she researched her options. That’s when she stumbled on flexdrive, which calls itself Netflix for cars, and is one of several new companies offering vehicles through a subscription.
“I love the flexibility,” Ford McLemore said. She now drives her children to sports and band practice in a 2018 Volkswagen Jetta.
Automakers, dealers and start-ups now offer car subscriptions as an alternative to the traditional financing model, which increasingly involves going into significant debt. The services typically charge a flat monthly fee that bundles together all the disparate expenses of car ownership, including insurance and maintenance.
“There’s a reason consumers are gravitating toward these services — what’s out there right now isn’t very good,” said Gary Hallgren, president of Arity, a technology start-up founded by Allstate.
The average monthly car loan payment is $533 for new cars and $397 for used vehicles, according to Edmunds, which provides information on the auto industry. The typical person takes nearly six years to pay off their car loan — and nearly a third of them trade in their vehicle before they’ve paid it off and pick up another loan.
“This is for people who want to have a car in the driveway all the time, but don’t want a long-term car loan,” said Jose Puente, founder and CEO of flexdrive.
Financial experts and consumer advocates caution that you’ll want to pull out your calculator before you abandon car ownership, which they say remains a better deal in most cases.
“This isn’t a magic formula that suddenly makes car ownership cheap,” said Jack Gillis, executive director of the Consumer Federation of America. “It may make it easier and simpler, but you’re paying a premium for that ease.”
SOURCE: Annie Nova