So, you’ve saved up some money or maybe even got a bonus. You’re now in the market to buy a car. But here’s the dilemma. Is it more cost-effective to buy or rent a car? What’s honestly better?
Well, it all comes down to a matter of priorities. For some, renting or buying a new car depends on the amount of money they are willing to spend and the convenience they are looking for. Others are more concerned about owning and having a sentimental bond with the vehicle.
After buying a house, buying a car is the second most significant investment a person can make. So, if you’re looking for answers and trying to weigh your options – you’ve come to the right place. We’ve broken down both options to help you understand what works best for you.
Buying a car
Although the used car market is a terrific place to hunt for a more cost-effective option, individuals prefer to buy a new car since there are risks associated with purchasing a used car.
The most commonly driven car in the UAE is a Toyota Corolla. To give you a clearer picture of how much buying a car will cost you – we will use the Toyota Corolla 2018 as an example.
The cost of a brand new Toyota Corolla 2018 is AED 70,900. There is a 20% downpayment, which considerably affects the first payment on the car and requires the buyer to save in advance. If you intend to take the vehicle on an EMI, the instalments for a five-year payback plan will be AED 980 per month. Besides this, you will want to buy insurance for your brand new car, which will cost you anywhere from AED 3,000 to AED 4,000 for comprehensive insurance.
Moreover, you will have post-purchase costs such as registration (AED 1,000), cleaning, servicing, maintenance (AED 1,000), Salik, and fuel collectively amounting to AED 4,000 to 5000. All of these costs put together will amount to AED 20,800 (excluding the down payment).
The monthly cost of an economical car like the Toyota Corolla is not extremely expensive. While you’re paying more in the short term, you’ll be paying less in the long run. Moreover, you can also sell the car at any point if you need to.
Advantages of buying a car:
1. Your costs are significantly lesser in the long run
Renting a car is often more expensive than making monthly car loan payments. However, if you’ve cleared the payments, you’ll be able to drive the car for years after you’ve paid for it. The longer you drive the vehicle, the less it costs to drive it.
2. You can sell it anytime
If you need to leave the country or do not feel the need to own a car anymore, you can trade it for a cheaper alternative or sell it if you want to.
3. You can keep it in perfect condition
Unlike rented cars, you can maintain the condition of your car for a longer period. Additionally, there are no appearance constraints – you can modify the vehicle the way you like.
Renting a car
In the UAE, people prefer to rent cars on a monthly basis. Renting a car saves time and money regarding insurance, registration, maintenance, and servicing. But for these very reasons, renting a car is far more expensive to own in the long run. Another benefit of renting cars is that you can change between models without worrying about the long-term cost or value of the vehicle.
When returning the car, it is inspected for damages, and if there are any, you will have to cover the charges using your security deposit. Additionally, rental cars are not comprehensively insured. This means if you get into an accident and the costs go beyond their insurance plan, you will have to pay the difference. Limited mileage is another drawback of rental cars; some rental companies only cover 2,500 kilometers, and exceeding it will be charged per kilometer.
Monthly rentals are substantially more than the cost of owning a car. To compare the two, we have chosen the rates of a fundamental economic sedan.
Cost of renting an economical sedan:
Monthly rental charge: AED 2,000 to AED 3,000 (prices may vary depending on the season and demand)
Security deposit: AED 1,000 to AED 2,000
Salik: AED 4,000 to AED 5,000 (this cost can be eliminated by using routes without Salik)
Parking: This will vary depending on where you park and if you need to use public parking.
Total cost: AED 42,500
Advantages of renting a car:
1. No depreciation losses
Unlike owning a car, you will not have to deal with any depreciation losses when you rent a car.
2. No additional insurance
If the car already has insurance, you will not be required to buy additional insurance. However, most insurance companies have third-party insurance and offer comprehensive plans.
3. No strings attached
If you are travelling or notice that you do not need the car for some time, you can return it and save money.
4. Switch between cars and companies
If you are unhappy with the car you’re driving or want to bump up to a better car, you can ask for a swap and pay the extra charges. Additionally, you can switch between car rental companies if you find a better offer elsewhere.
Buying used cars
If buying a brand new car is not an option, and you do not want to drive a rental, you could consider buying a used car. Buying a used car might be an affordable alternative since a new car has a considerably more significant depreciation in the first year, the most expensive part of owning a car. If you opt for this route, make sure to inspect the vehicle to avoid unanticipated repairs that could become very costly.
What do we think?
Buying and renting a car both have their perks. However, when looking at it from a financial perspective, owning your car is a sensible option if you intend to drive it for the next five years or so.
If you know how long you will need a car in the UAE, the option is simple: rent if you’ll be driving for a few months and buy if you’ll be driving for more than five years.