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Monday, January 18, 2021

Explained: How the car subscription service works, and who should opt for it

The subscription service enables a customer to drive home a vehicle in lieu of a monthly fee and having full access to the vehicle without having to put down any down-payment.

Written by Sandeep Singh , Edited by Explained Desk | New Delhi | Updated: January 7, 2021 8:12:26 am
Explained: How the car subscription service works and who should opt for itWhile Maruti announced its subscription service in September 2020, Hyundai started its subscription programme in March 2019.

Maruti Suzuki India Limited announced that it will add three more car models, WagonR, S-Cross and Ignis, to its subscription programme launched in September 2020. With this the company is now offering 10 models across eight cities including Delhi-NCR, Bengaluru, Hyderabad, Pune, Mumbai, Chennai and Ahmedabad. Other models that are available under the company’s subscription programme include Swift, Dzire, Vitara Brezza, Ertiga from Maruti Suzuki ARENA and Baleno, Ciaz, and XL6 from NEXA.

What is a subscription service?

The subscription service enables a customer to drive home a vehicle in lieu of a monthly fee and having full access to the vehicle without having to put down any down-payment. Subscribers instead need to pay an all-inclusive monthly fee that covers complete maintenance, insurance and roadside assistance.

While Maruti announced its subscription service in September 2020, Hyundai started its subscription programme in March 2019. While it launched the scheme across its entire model range in association with Revv, Hyundai is currently offering it across 20 cities.

Maruti teamed up with Orix Auto Infrastructure Services India, a subsidiary of Japan-based Orix Corp, to launch the subscription model across eight cities.

How does it work?

All you need to do is subscribe, pay a monthly fee and drive the car and pay for the fuel. All other costs including maintenance, insurance will be taken care by the leasing company and the OEM. The plan comes with tenure options of 24, 36, and 48 months and after the completion of subscription tenure, the customer can also opt to extend, upgrade the vehicle, or buy the car at market price.

The subscription scheme offers two number plates. One is white number plate in which case the car is registered in customers name and hypothecated to leasing company and the other option is black number plate in which case the car is registered in leasing company’s name.

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How much do you pay and how does it compare against a car purchase?

The subscription does not come cheap. For a WagonR Lxi customers will have to pay an all-inclusive monthly subscription charge starting Rs 12,722 and that for a Ignis Sigma it starts at Rs 13,722 in Delhi (including taxes) for a tenure of 48 months.

If you subscribe for a Maruti Suzuki Swift Lxi white number plate (registered in the name of customer) for a period of three years, one needs to pay a monthly subscription fee of Rs 15,496, which means total subscription fee of Rs 5.57 lakh over a period of three years.

However, if you go for purchase of the car, the on-road price of the car comes to over Rs 5.5 lakh and if you take a loan of Rs 4.5 lakh, your EMI on a 9% loan for three year period would come to Rs 14,300 per month. In case of purchase of car, one would have also paid around Rs 1 lakh in down payment, registration and insurance cost. Also, one would be required to pay for the annual maintenance, insurance renewal and for road assistance during the lifetime of the car.

So a quick check shows that even in case of subscription, the customer would have paid almost the equivalent of the on-road price of the car in subscription fee over a subscription term of three years.

So who is going for it?

Car companies say that this is not for regular customers. It is a scheme for people who don’t want that hassle of buying and selling the car every two to three years and in other cases customers who don’t have the money for down payment. Also, people who move out on assignments to other cities for 2-3 years are looking at this as an option as it saves them from transporting their vehicle or from the hassle of buying or selling the car.

What happens with the car once it is returned to the leasing firm?

Industry insiders say that while currently the subscription scheme is available for new cars, once the cars are used and returned, they can be utilised for used car subscription service, which will be much cheaper.

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