What is cheaper – long term car rentals or owning a car?
I have been asked this question way too often. Therefore I became curious myself and did some calculations. I had proven, these days it is potentially easier and much cheaper to hire a vehicle rather than buying one.
Below is to prove the statement above is legitimate.
Firstly, we will have to make a few assumptions:
Assumption #1. A person or a family changes cars every 3 years.
Assumption #2. There is always a rental car company available in your area.
Assumption #3. You are over 25 years old with a full Australian driver licence and have not lost any demerit points in the last 3 years.
Secondly, we would want to do similar calculations for different life styles.
Here is the Scenario #1. Young family, active life style involves a lot of travelling. The public transport is used to get from and to work. Car is mostly used on the weekend to visit family and friends, do shopping and go on hiking or to the beach.
Buying a car.
Lets use the calculator on the Toyota website: Car Loan Calculator
Here we are going to buy a delightful Toyota Corolla 5 doors Hatchback Petrol (latest model). We will take the 3 years loan with 5000$ deposit. The calculator shows the cost of 921.62$ monthly with 7.5% interest rate. The repayments part will equal to 33,178.32$ for 3 years, so the total car price including the deposit money will become 38,178.32$
Toyotas are one of the best cars in the world, the most reliable and the dealers are freely offering drive-away prices, means you do not need to pay anything for the registration and green slip for the first year. However the consequent years will cost you approximately 1200$ annually. So it is 2400$ for 3 years.
The expenses don’t end here. To get the best out of your warranty and not to get into a trouble with your car, you will have to service your vehicle regularly. You can find the service fees from one of the Sydney Toyota Dealers here Toyota Capped Price Servicing.
Here we are assuming you don’t travel more than 400km a week. That would come to 20800km a year, around 62400km for the period of 3 years. Considering above, each service would cost around 140$. Please note that in case you need the new oil, engine or suspension service, tyres or break pads replaced, it is charged on top. Approximately 50$ each time. According to this schedule Toyota Service Intervals you will need to service your car at least 6 times in 3 years. That brings the total cost to (140 + 50) * 6 = 1140$.
The expenses list goes on. Nowadays it is absolutely essential to have the 24×7 road side assistance. Costs 199$ annually and comes to 597$ for 3 years.
Now, the most interesting part – the insurance. Considering that most of the hired cars have comprehensive cover included in the rental fees, would be fair to base our calculations as we were to purchase the full comprehensive insurance. That is where we need the assumption #3. If you are a driver with a good driving history you can be lucky to get the cheapest premium which is about 1000$ a year. This brings us to 3000$ expense over 3 years.
Fortunately, we can sell the car in 3 years and get some money back. Lets check Car Sales to know how much we can expect. Luckily, Toyotas always keep their resale value, you can get impressive 15000$ back when selling the vehicle.
Lets review the above and see what fees are applicable when renting a car.
Car cost are equivalent to the rentals fees. It would be about 70$ for 2 days each week with 400km included. Brings it to 3640$ a year.
Registration and green slip – 0$.
Servicing – 0$. The Rental Cars Company takes care of it for you, you just need to bring the car back in time.
Road side assistance – 0$. Because it is included into the rental fees of the most car rentals.
Insurance – 0$. The default insurance is already included.
* buying a car for 3 years will cost you 45,315.32$ but you will get 15,000.00$ back. Surprisingly the cost of owning the car over 3 years was 30,315.32$.
* renting a car for 3 years would cost you 10,920.00$.
As per above, hiring a vehicle is almost 3 times cheaper than owning a car. Also, lets not forget the rental cars are almost hassle free. And that is the reason why the car hire is in demand these days.
The only benefit of buying a car, you will get to drive a brand new vehicle with that factory smell in it that eventually goes away. Obviously, new cars can be a disadvantage to some who knows the pain of getting the first scratch.
Feel free to perform your own calculations if you think of checking whether buying a used car will make much difference. Obviously, the vehicle would cost you less but servicing of a used car always involves bigger cost. There could be additional costs of pink or blue slips depends on the car age. Lets not forget, the resale value of the older vehicles might not be as attractive.