Renting A Cab Vs Buying A Car

By BankBazaar | June 30, 2017

Renting A Cab Vs Buying A Car

Travelling by cab is no longer a luxury. In fact, it is a necessity for many today. Taking a cab is convenient as well. You needn’t worry about tiring yourself out during peak traffic or scouting for parking in busy streets. All you have to do is sit back and relax in the back seat. So, why exactly would you need to get a car of your own? And who would want to deal with the hassle of repaying a Car Loan, right? Well, there’s more to it than meets the eye. Let’s find out!

Having a car of your own can actually cost you less than taking a cab in the long run. It’s true! Also, with your own car at your disposal, you can save you money when you take those long road trips and even tackle certain emergencies immediately.

Keep in mind, however, that we are not discouraging you from taking a cab. We only want you to think hard about your financial decisions before making them so that you can save enough for your family in the long run. Here’s what the numbers reveal.

Additional Reading: Car Loans – Interest Rates, Eligibility & More

The assumptions: Here, we will be using a 5 year period for our calculations, since most people who buy a car tend to use it for at least 5 years. In fact, if they don’t, they will lose quite a bit. So, this will be about buying a car and using it for 5 years vs renting a cab for 5 years. Let’s go!

Buying A Car – Using Cash

Buying a car is no joke, of course. Most sedans cost you at least Rs. 10 lakhs. Even if you go in for a hatchback, it will cost you as much as Rs. 6 lakhs.

Let’s take conservative estimates. Let’s assume you buy a car for Rs. 6 lakhs and you pay the amount in cash. So, the total cost here will be Rs. 6 lakhs inclusive of all charges, as well as Car Insurance. Let’s assume that your car gives you 15 km per litre. If you bought a diesel car the cost of fuel will work out to Rs. 59 per litre. That would be Rs. 3.9 per km. Now, on an average, you might travel 1,500 km per month if you use it every day. So, your total fuel cost works out to Rs. 3.9 x 1500 x 60 months = Rs. 3,51,000.

Now, we need to factor in the cost of maintenance. Diesel vehicles are high on maintenance costs. Assuming that you spend Rs. 30,000 per year for maintenance, it would work out to Rs. 30,000 x 5 years = Rs. 1,50,000. The value of your car will be Rs. 2,62,144 (if it depreciated at 20% every year).

So, the total cost of owning a car comes to Rs. 6,00,000 + 3,51,000 + Rs. 1,50,000 – 2,62,144 = Rs. 8,38,856.

Buying A Car – Using Car Loan

If you take a Car Loan for say, Rs. 4 lakhs, you will have to pay a total interest of Rs. 1,09,929. So, total amount repaid will be Rs. 5,17,929. This is assuming an interest rate of 10% per year for a 5 year loan and that you made a down payment of Rs. 2,00,000.

So, the total cost of owning your car comes to Rs. 5,17,929 + 2,00,000 + 3,51,000 (fuel cost) + 1,50,000 (maintenance) – 2,62,144 (value of your car at the end of 5 years) = Rs. 9,56,785.

Additional Reading: All You Need To Know About HDFC Car Loan

Renting A Cab

Now, let’s assume it costs you Rs. 12 per km if you take a cab. We assumed you travel 1,500 km every month. Now, the cost of renting a cab comes to Rs. 12 x 1,500 km x 12 months x 5 years = Rs. 10,80,000 for 5 years. Note that we are not even including those peak hour charges that you will have to shell out if you are starting for office later than 8 AM and starting from office after 6 PM.

Count Those Trips

Let’s assume you take 2 road trips every year. Suppose you travel 2,000 km every year for your vacation, will taking a cab work out cheaper? Of course not! Cabs charge about Rs. 16 per km for outstation road trips and a daily allowance of about Rs. 300 for the driver.

This will work out to about Rs. 32,900. What if you used your own car? Remember, we assumed the cost of fuel to be Rs. 59 per litre. Given a mileage of 15 km per litre, the cost will be Rs. 3.9 per km. Then, your total fuel cost will work out to Rs. 3.9 x 2000 = Rs. 7,800. Wow!

Additional Reading: The Future Of Car Loans In India

Convinced? But, before you run out to get yourself a Car Loan, you must compare across lenders first. Look for the lowest interest rates, processing fees and prepayment charges. Also, make as much of a down payment as you can, so that you don’t have to shell out a lot in interest.

As you know, buying a car using cash works out much cheaper than getting a loan or taking a cab. So, save up using a Fixed Deposit or a Recurring Deposit for your car down payment before going for that Car Loan. Ultimately, if you can get your dream car and save some money too, isn’t that a good thing?

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