When a client is ready to get a new car, one of the top questions that I received is “ Should I buy or rent a car?” The reasons given for renting has more to do with the fact that renting seems easier and “cheaper” as you do not need to deal with repairing and maintenance cost.
Should I Buy or Rent a Car?
When you are ready to purchase a vehicle there is a lot to think about. Once you decide what vehicle you want, the next decision is to determine how to finance that dream car. Some of you may be thinking of renting a vehicle instead of purchasing it. Renting has its place in the auto finance world but it is not for everyone. Every person’s situation is different and people love options. Neither renting nor buying is always the better choice 100% of the time.
Let’s face it; a rent is just a glorified rental car with payments spread out over 2-3 years. Of course, it is true that there seem to be no repair costs on a rent, but it might surprise you how incidental fees (including repairs) add up to a bad deal. Here are top 3 examples:
- WEAR AND TEAR
In most cases, the rented car gets returned with a few bumps & bruises. This is the nature of driving and most cars have a normal amount of wear and tear at the end of the rent term. The renting companies, however, see “normal wear and tear” differently than you and I. The fees for “excessive” wear and tear can be staggering. For instance, I spoke with a customer who returned her KIA back to the previous dealers, and there were a few tiny scratches on the bumper.
They charged her $250 per bumper, that’s a total of $500. Her tires were not too bad with about 60% life left on them, but they charged her $300 for that. (And bear in mind that tires typically will wear out at about 60k-65k kilometres). New tires become a necessary (and costly) expense on a rented car that you will incur and yet you do not benefit from that investment like you would if you actually owned the car.
A way around this would be to pay the renting company a visit before your turn-in date. You can have them give you a repair assessment so that you can have the repairs done before you officially turn the car back instead of being forced to pay their top dollar on the repairs that they consider excessive. It is only then that the light goes on in your head that the reason you were choosing to rent was to avoid all this repair stuff, to begin with.
2. EXCESSIVE MILEAGE
However, with the average commute of 13,000 miles, you will be exceeding those terms. You can purchase extra miles, but at 15-20 cents/mile. While it might looking like a small amount, but it can add up quickly.
3. EARLY TERMINATION
In a perfect world, you would know exactly what the future might bring. However, if you were forced to terminate the rent contract due to a change of job, family emergency or loss of income due to injury, you will get slammed in penalties, as much as 6 monthly payments. Just go on Craigslist and type in “take over rent” to see how many good people find themselves in this predicament. The stakes are so high that people are desperate and willing to go through the trouble to re-rent their cars rather than pay the renting company the heavy penalty.
On the other hand, if you buy a new car you should intend on owning it for more than 3 years whereby the depreciation becomes less of a factor and you start to gain more and more equity in the car. The only argument in favour of a rent other than running the car as a pure business deduction is that renting has a slightly lower monthly payment compared to financing a new car with the same loan terms. If you need access to more cash every month, renting may be more favourable, but then why would you be opting for a brand new car, to begin with instead of buying a slightly used car at a steep discount? In the long run, there is a high price to pay for the perceived convenience of renting.
Renting companies want their cake and eat it too. And you are the cake. Think of it this way, after the renting company gets the car back from you (and charges you for most of the “conditioning”) they turn around and then sell the car at a profit. The question is; who is the one that makes that profit possible? You are. That profit is your gift to them in the form of an expensive rent. Is that fair? We will leave that for you to decides.
The next post, we will be summing up the pros and cons of buying and renting the car. Like Car Source facebook page so you will not miss out all the latest blogs full of information and new promotion!