Lifestyle changes happen – be it traveling back to work, starting a family, or starting your own business, and perhaps having a car would sound ideal for you to ease commuting woes. However, when it comes to the accounting of whether car ownership or long term car rental is actually viable, the math may not look as romantic as it seems.
Why Consider Car Rental Instead of Car Ownership?
We all know that car ownership is an expensive venture to buy a car at the get go.
One would have these costs taken into consideration:
- Depreciating costs of the car – which is the difference in the car value from the time you buy vs the time you sell it, mostly calculated annually, of which luxury cars generally have higher depreciation costs accrued to it
- Total upfront costs – Certificate of Entitlement (COE), Open Market Value (OMV), Additional Registration Fees (ARF), Car Loan Interest Rate, Vehicle Excise Duty, GST, even the Car Dealer – the costs do add up. (approx $125k)
- Car Insurance – Depending on your excess fees, one could spend about $800 – $1200/ year, which then averages to about $1000/year.
- Road Tax – which is calculated based on the power rating of the car
- Petrol costs & Electronic Road Pricing (ERP) – A variable cost, but the more you drive, the further your travelled distance, the brunt is about $200-$300/mth
- Parking Costs – Every car would need to be parked at the end of a long drive. If it resides in a HDB, that would amount to about $110/mth, and a bulk of the maintenance fee if you were to live in a condo (~$300 – 400/mth) would go to car parking.
As observed, the cost of cars are increasing in the past few months, along with the inflationary pressures of having increased cost of living felt by many. It’s an important point of conversations to consider how much you should budget for your commuting costs should you require a vehicle to ease your commuting needs. Of course, financial factors are only one factor of which one has to consider before ultimately making the decision. Convenience, flexibility, are definitely factors that push you to prioritize one decision over another. Nevertheless, it is an important point of consideration, and one that should not be taken lightly.
In sum, as good as car ownership sounds, some individuals may not be able to exercise this option readily, especially for those with tight cash flow. Hence, long term car rental could be a solution.
How Much Does It Cost To Afford A Car?
Taking some of the cheaper cars in the market to date, the average costs of $280,000 worth of expenses over the next 10 years, with car payment being an average at $200,000 (which includes basic car cost, dealer’s margin, and, interest on car loan), as well as the yearly operating cost of about $7000 (fuel, parking, ERP, insurance, maintenance, and road tax). Taking this into consideration, that is a whooping $2250/mth just to afford one of the cheaper cars in the market. On the contrary, public transport costs only $128/mth should one opt for the Adult Monthly Travel Card.
How Much Should I Spend per Month on Car Rental?
Hence, car rental is a relatively cost effective alternative, as compared to the car ownership model. With various ways of car rental concepts in the market (from daily, weekly or monthly rental), there is a model to fit your specific need.
[Disclaimer: these are just general benchmark numbers, and your decision could vary a lot depending on your lifestyle, car model rented and transportation needs].
Taking an average long term car rental’s rate of $1500 (rental prices would vary from one car model to another), the only car related expense that you may need to take into consideration for long term car rental would be the variable costs: 1) petrol costs, 2) ERP and 3) Parking costs. Of course, everyone’s financial journey and commuting needs are different, and an average summation of these costs ~$500.
In total, the average monthly long term rental rate would be: ~$2000/mth
Common within the personal finance space, we utilised the 50-30-20 rule, where 50% of your income goes to Essentials, 30% going to Lifestyle Choices and 20% Savings/Investments. Hence, with $2000 being the total expense of car rental (rental rate, ERP, COE, parking included), and assuming one has a total of $1500 for food, insurance, parents’ allowance, etc. for a relatively comfortable living, which would add up to 50% of your income, one would need to earn ~$7,000 a month / household salary to afford renting a car over a long term basis.
Of course, this does not mean that you are unable to rent a car without having said salary. Again, this is dependent on a few assumptions:
- Long term rental (monthly rental) is at $1500, with $500 worth of variable expenses
- Your other “essential” expenses is at $1500
- You follow the 50-30-20 rule, of which is simply a general guideline for simplified calculations
Thus, take this as a general way of how you can calculate your commuting expenses, and to make the best commuting decision for yourself and your family. For one, since car rental is done on a by-needs basis, one could adopt a daily car rental of approx $50-$150/day, depending on car models, on specific days of the month, to suit one’s travelling needs. With this flexible arrangement, one need not have to fix one’s own travelling expenses, while still having the leeway to enjoy the conveniences of what a car rental has to offer.
The Value of Long Term Car Rental
In sum, car rental may be costly, but costs are subjective to one’s own lifestyles and needs. Moreover, it depends on your personal usage of the car to make the decision worth every penny spent. However, the benefits of car rental cannot be understated – it’s flexibility of renewal of contract on a needs basis, and that there is no need to save up exorbitant amounts to fork out for the down payment, or to heavily rely on car loans to offset monthly payments, makes it a worthy commuting consideration.
Consult Us at BizLink Rent-A-Car
Keen to learn more about how renting a car can suit your commuting needs but have financial concerns? Our sales associates will be able to guide you through the different points to consider as you embark on your car rental journey with us!