Renting vs buying a car

Feb 21 2013 16:19
Cape Town - With the ever-increasing petrol price and shrinking budgets, the prospect of ever becoming a car owner is just that - a prospect - for many South Africans.

But there are other alternatives.

According to Ariva MD David Smith, the long-term car rental business has opened up new avenues of living the lifestyle that suits your needs without the risks.

A recent survey by global audit firm KPMG noted that the long-term car rental option is set to grow substantially in emerging markets.

This growth, Smith says, is in some ways attributed to the fact that consumers are becoming "smarter and more aware" of their lifestyle choices.

He says long-term renting is increasingly being recognised and considered a flexible, affordable and viable alternative to buying a car.

Here's why you should consider it.

1. Financing problems 

Perhaps you don’t have a credit history, or you may have a less than perfect credit record.

Banks may overlook you because of this, but you could still be approved by a rental company.

While there are definitely criteria that will be considered before a contract is approved, long-term renting is a viable alternative in the local motoring market for those consumers who may have been declined by banks.

2. The ownership question

Buying your car once-off and paying for it in instalments over a period are not the same.

Monthly payments mean that you will owe money to the bank for the entire instalment period; ultimately, you don’t (yet) own the car until you have paid your last instalment.

Additionally, don't forget that if you buy (or have already bought) a car with a balloon payment plan, you will need to either pay over your balloon payment in one large sum or if you are not able to make a single payment, refinance it with the bank and pay it off over a further period until you become the actual owner of the car.

This increases your costs as you are paying interest for a longer period.

3. Is it worth it?

Have you ever considered what your car will actually be worth once you have finally paid your last instalment? Do you know that the value of a car drops as soon as you drive it out of the dealership?

It is the motoring industry’s standard that a vehicle’s value decreases by between 18% and 22% once it leaves the dealership.

In addition, the value on some models can be less than 40% of the original price at the end of a five-year contract period.

Oil tycoon John Paul Getty once said: “If it appreciates, buy it. If it depreciates, lease it.”

Who are we to argue with a dollar billionaire who at one stage was one of the richest men in the world? 

So, if you don’t have a long-term view of owning and driving the same car for five to 10 years at least, is it really worth buying on instalment?

If we consider that on average consumers look to trade in their cars for something new every three years or so, and with year-on-year depreciating value where you may need to pay in on your next trade-in, long-term rentals start to make more sense.

4. Costs

Owning a vehicle also means upkeep and maintenance. Once you factor in the cost of insurance, tyres, services, and even a tracker unit, you begin to see what the car will actually cost you on a monthly basis.

It’s only when you begin to tally up all these additional expenses that you see the difference between the monthly instalment cost and actual cost of ownership.

With the long-term rental model, the company negotiates with insurance and tracking service providers on your behalf to give you a better deal.

Vehicle services are managed through partnerships with their dealer network, and are therefore delivered at a more competitive and inclusive price.

5. One point of contact

The entire rental process is hassle-free because you have one point of contact that will arrange everything for you.

Application and financial approval are done through one source, and so is the booking of services and the management of your insurance claims.

You don’t have to deal with different people - you have one contact for all your car requirements.

 - Fin24

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